Correlation Between Discover Financial and Intermediate Capital

Can any of the company-specific risk be diversified away by investing in both Discover Financial and Intermediate Capital 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 Intermediate Capital 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 Intermediate Capital Group, you can compare the effects of market volatilities on Discover Financial and Intermediate Capital 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 Intermediate Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Intermediate Capital.

Diversification Opportunities for Discover Financial and Intermediate Capital

-0.08

Correlation Coefficient

Discover Financial  Intermediate Capital

Good diversification

The 3 months correlation between Discover and Intermediate is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Intermediate Capital Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Capital 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 Intermediate Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Capital has no effect on the direction of Discover Financial i.e., Discover Financial and Intermediate Capital go up and down completely randomly.

Pair Corralation between Discover Financial and Intermediate Capital

Assuming the 90 days trading horizon Discover Financial Services is expected to under-perform the Intermediate Capital. But the stock apears to be less risky and, when comparing its historical volatility, Discover Financial Services is 1.27 times less risky than Intermediate Capital. The stock trades about -0.19 of its potential returns per unit of risk. The Intermediate Capital Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  208,478  in Intermediate Capital Group on September 29, 2024 and sell it today you would lose (2,078) from holding Intermediate Capital Group or give up 1.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Discover Financial Services  vs.  Intermediate Capital Group

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 uncertain basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Intermediate Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Intermediate Capital is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Discover Financial and Intermediate Capital

The main advantage of trading using opposite Discover Financial and Intermediate Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Intermediate Capital 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 Intermediate Capital will offset losses from the drop in Intermediate Capital's long position.

The idea behind Discover Financial Services and Intermediate Capital Group 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.