Correlation Between Discover Financial and DALATA HOTEL

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

Diversification Opportunities for Discover Financial and DALATA HOTEL

0.88

Correlation Coefficient

Discover Financial  DALATA HOTEL

Very poor diversification

The 3 months correlation between Discover and DALATA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and DALATA HOTEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DALATA HOTEL 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 DALATA HOTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DALATA HOTEL has no effect on the direction of Discover Financial i.e., Discover Financial and DALATA HOTEL go up and down completely randomly.

Pair Corralation between Discover Financial and DALATA HOTEL

Assuming the 90 days horizon Discover Financial Services is expected to generate 1.12 times more return on investment than DALATA HOTEL. However, Discover Financial is 1.12 times more volatile than DALATA HOTEL. It trades about 0.15 of its potential returns per unit of risk. DALATA HOTEL is currently generating about 0.13 per unit of risk. If you would invest  14,073  in Discover Financial Services on September 26, 2024 and sell it today you would earn a total of  2,723  from holding Discover Financial Services or generate 19.35% 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.  DALATA HOTEL

Discover Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Discover Financial reported solid returns over the last few months and may actually be approaching a breakup point.

DALATA HOTEL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DALATA HOTEL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DALATA HOTEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and DALATA HOTEL

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

The idea behind Discover Financial Services and DALATA HOTEL 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..