Correlation Between Discover Financial and Lufax Holding

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

Diversification Opportunities for Discover Financial and Lufax Holding

-0.62

Correlation Coefficient

Discover Financial  Lufax Holding

Excellent diversification

The 3 months correlation between Discover and Lufax is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Lufax Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lufax Holding 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 Lufax Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lufax Holding has no effect on the direction of Discover Financial i.e., Discover Financial and Lufax Holding go up and down completely randomly.

Pair Corralation between Discover Financial and Lufax Holding

Considering the 90-day investment horizon Discover Financial Services is expected to generate 0.55 times more return on investment than Lufax Holding. However, Discover Financial Services is 1.81 times less risky than Lufax Holding. It trades about 0.12 of its potential returns per unit of risk. Lufax Holding is currently generating about 0.05 per unit of risk. If you would invest  13,963  in Discover Financial Services on September 23, 2024 and sell it today you would earn a total of  3,353  from holding Discover Financial Services or generate 24.01% return on investment over 90 days.

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

Discover Financial Services  vs.  Lufax Holding

Discover Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 9 (%) 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.

Lufax Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lufax Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Lufax Holding unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Lufax Holding

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

The idea behind Discover Financial Services and Lufax Holding 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.