Correlation Between Discover Financial and Toro

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

Diversification Opportunities for Discover Financial and Toro

0.22

Correlation Coefficient

Discover Financial  Toro

Modest diversification

The 3 months correlation between Discover and Toro is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of Discover Financial i.e., Discover Financial and Toro go up and down completely randomly.

Pair Corralation between Discover Financial and Toro

Considering the 90-day investment horizon Discover Financial Services is expected to generate 1.27 times more return on investment than Toro. However, Discover Financial is 1.27 times more volatile than Toro Co. It trades about 0.09 of its potential returns per unit of risk. Toro Co is currently generating about -0.02 per unit of risk. If you would invest  11,005  in Discover Financial Services on September 25, 2024 and sell it today you would earn a total of  6,479  from holding Discover Financial Services or generate 58.87% return on investment over 90 days.

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

Discover Financial Services  vs.  Toro 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.

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Discover Financial and Toro

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

The idea behind Discover Financial Services and Toro 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.

Check out your portfolio center.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.