Correlation Between SoFi Technologies and Discover Financial

Can any of the company-specific risk be diversified away by investing in both SoFi Technologies and Discover Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SoFi Technologies and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SoFi Technologies and Discover Financial Services, you can compare the effects of market volatilities on SoFi Technologies and Discover Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SoFi Technologies with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of SoFi Technologies and Discover Financial.

Diversification Opportunities for SoFi Technologies and Discover Financial

0.64

Correlation Coefficient

SoFi Technologies  Discover Financial

Poor diversification

The 3 months correlation between SoFi and Discover is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SoFi Technologies and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and SoFi Technologies is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SoFi Technologies are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of SoFi Technologies i.e., SoFi Technologies and Discover Financial go up and down completely randomly.

Pair Corralation between SoFi Technologies and Discover Financial

Given the investment horizon of 90 days SoFi Technologies is expected to under-perform the Discover Financial. In addition to that, SoFi Technologies is 1.72 times more volatile than Discover Financial Services. It trades about -0.07 of its total potential returns per unit of risk. Discover Financial Services is currently generating about -0.01 per unit of volatility. If you would invest  17,185  in Discover Financial Services on December 28, 2024 and sell it today you would lose (571.00) from holding Discover Financial Services or give up 3.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SoFi Technologies  vs.  Discover Financial Services

SoFi Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days SoFi Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Discover Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SoFi Technologies and Discover Financial

The main advantage of trading using opposite SoFi Technologies and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SoFi Technologies position performs unexpectedly, Discover Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Discover Financial will offset losses from the drop in Discover Financial's long position.

The idea behind SoFi Technologies and Discover Financial Services pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Directory module to find actively traded commodities issued by global exchanges.