Correlation Between MQGAU and Discover Financial

Can any of the company-specific risk be diversified away by investing in both MQGAU 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 MQGAU and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MQGAU 5376057 23 SEP 27 and Discover Financial Services, you can compare the effects of market volatilities on MQGAU 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 MQGAU with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of MQGAU and Discover Financial.

Diversification Opportunities for MQGAU and Discover Financial

0.65

Correlation Coefficient

MQGAU  Discover Financial

Poor diversification

The 3 months correlation between MQGAU and Discover is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding MQGAU 5376057 23 SEP 27 and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and MQGAU 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 MQGAU 5376057 23 SEP 27 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 MQGAU i.e., MQGAU and Discover Financial go up and down completely randomly.

Pair Corralation between MQGAU and Discover Financial

Assuming the 90 days trading horizon MQGAU is expected to generate 101.62 times less return on investment than Discover Financial. But when comparing it to its historical volatility, MQGAU 5376057 23 SEP 27 is 53.16 times less risky than Discover Financial. It trades about 0.08 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  14,457  in Discover Financial Services on October 23, 2024 and sell it today you would earn a total of  4,261  from holding Discover Financial Services or generate 29.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	31.67%
Values	Daily Returns

MQGAU 5376057 23 SEP 27  vs.  Discover Financial Services

MQGAU 5376057 23

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MQGAU 5376057 23 SEP 27 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, MQGAU is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Discover Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MQGAU and Discover Financial

The main advantage of trading using opposite MQGAU and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MQGAU 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 MQGAU 5376057 23 SEP 27 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 Transaction History module to view history of all your transactions and understand their impact on performance.