Correlation Between Naked Wines and Discover Financial

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

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

Diversification Opportunities for Naked Wines and Discover Financial

-0.08

Correlation Coefficient

Naked Wines  Discover Financial

Good diversification

The 3 months correlation between Naked and Discover is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Naked Wines 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 Naked Wines plc 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 Naked Wines i.e., Naked Wines and Discover Financial go up and down completely randomly.

Pair Corralation between Naked Wines and Discover Financial

Assuming the 90 days trading horizon Naked Wines plc is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 1.26 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 0.16 of returns per unit of risk over similar time horizon. If you would invest  13,771  in Discover Financial Services on August 31, 2024 and sell it today you would earn a total of  4,472  from holding Discover Financial Services or generate 32.47% return on investment over 90 days.

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

Naked Wines plc  vs.  Discover Financial Services

Naked Wines plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Naked Wines is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Discover Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Discover Financial

The main advantage of trading using opposite Naked Wines and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naked Wines 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 Naked Wines plc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.