Correlation Between Discover Financial and Aeon

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

Diversification Opportunities for Discover Financial and Aeon

0.49

Correlation Coefficient

Discover Financial  Aeon

Very weak diversification

The 3 months correlation between Discover and Aeon is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Aeon Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeon 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 Aeon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeon has no effect on the direction of Discover Financial i.e., Discover Financial and Aeon go up and down completely randomly.

Pair Corralation between Discover Financial and Aeon

If you would invest  13,537  in Discover Financial Services on September 25, 2024 and sell it today you would earn a total of  4,121  from holding Discover Financial Services or generate 30.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Discover Financial Services  vs.  Aeon Co

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

Aeon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aeon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Discover Financial and Aeon

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

The idea behind Discover Financial Services and Aeon Co 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.