Correlation Between Discover Financial and Booking Holdings
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Booking Holdings 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 Discover Financial and Booking Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Discover Financial Services and Booking Holdings, you can compare the effects of market volatilities on Discover Financial and Booking Holdings 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 Discover Financial with a short position of Booking Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Booking Holdings.
Diversification Opportunities for Discover Financial and Booking Holdings
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Discover and Booking is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Booking Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booking Holdings and Discover Financial 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 Discover Financial Services are associated (or correlated) with Booking Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Booking Holdings has no effect on the direction of Discover Financial i.e., Discover Financial and Booking Holdings go up and down completely randomly.
Pair Corralation between Discover Financial and Booking Holdings
Assuming the 90 days trading horizon Discover Financial is expected to generate 3.53 times less return on investment than Booking Holdings. But when comparing it to its historical volatility, Discover Financial Services is 6.78 times less risky than Booking Holdings. It trades about 0.16 of its potential returns per unit of risk. Booking Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 415,895 in Booking Holdings on September 25, 2024 and sell it today you would earn a total of 89,105 from holding Booking Holdings or generate 21.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Discover Financial Services vs. Booking Holdings
Performance |
Timeline |
Discover Financial |
Booking Holdings |
Discover Financial and Booking Holdings Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Discover Financial and Booking Holdings
The main advantage of trading using opposite Discover Financial and Booking Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Booking Holdings 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 Booking Holdings will offset losses from the drop in Booking Holdings' long position.Discover Financial vs. Uniper SE | Discover Financial vs. Mulberry Group PLC | Discover Financial vs. London Security Plc | Discover Financial vs. Triad Group PLC |
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Check out your portfolio center.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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