Correlation Between Walker Dunlop and Discover Financial

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

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

Diversification Opportunities for Walker Dunlop and Discover Financial

-0.64

Correlation Coefficient

Walker Dunlop  Discover Financial

Excellent diversification

The 3 months correlation between Walker and Discover is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Walker Dunlop and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Walker Dunlop 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 Walker Dunlop 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 Walker Dunlop i.e., Walker Dunlop and Discover Financial go up and down completely randomly.

Pair Corralation between Walker Dunlop and Discover Financial

Allowing for the 90-day total investment horizon Walker Dunlop is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, Walker Dunlop is 2.55 times less risky than Discover Financial. The stock trades about -0.04 of its potential returns per unit of risk. The Discover Financial Services is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  41,833  in Discover Financial Services on October 23, 2024 and sell it today you would earn a total of  14,167  from holding Discover Financial Services or generate 33.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Walker Dunlop  vs.  Discover Financial Services

Walker Dunlop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walker Dunlop has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Discover Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Discover Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walker Dunlop and Discover Financial

The main advantage of trading using opposite Walker Dunlop and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walker Dunlop 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 Walker Dunlop 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.