Correlation Between Discover Financial and Lexinfintech Holdings

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

Diversification Opportunities for Discover Financial and Lexinfintech Holdings

0.68

Correlation Coefficient

Discover Financial  Lexinfintech Holdings

Poor diversification

The 3 months correlation between Discover and Lexinfintech is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Lexinfintech Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexinfintech 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 Lexinfintech Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexinfintech Holdings has no effect on the direction of Discover Financial i.e., Discover Financial and Lexinfintech Holdings go up and down completely randomly.

Pair Corralation between Discover Financial and Lexinfintech Holdings

Considering the 90-day investment horizon Discover Financial is expected to generate 2.25 times less return on investment than Lexinfintech Holdings. But when comparing it to its historical volatility, Discover Financial Services is 1.92 times less risky than Lexinfintech Holdings. It trades about 0.07 of its potential returns per unit of risk. Lexinfintech Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Lexinfintech Holdings on September 23, 2024 and sell it today you would earn a total of  419.00  from holding Lexinfintech Holdings or generate 243.6% return on investment over 90 days.

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

Discover Financial Services  vs.  Lexinfintech Holdings

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.

Lexinfintech Holdings

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lexinfintech Holdings are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lexinfintech Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Lexinfintech Holdings

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

The idea behind Discover Financial Services and Lexinfintech Holdings 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.