Correlation Between Compass Digital and Discover Financial

Can any of the company-specific risk be diversified away by investing in both Compass Digital and Discover Financial 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 Compass Digital and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compass Digital Acquisition and Discover Financial Services, you can compare the effects of market volatilities on Compass Digital and Discover Financial 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 Compass Digital with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Digital and Discover Financial.

Diversification Opportunities for Compass Digital and Discover Financial

-0.26

Correlation Coefficient

Compass Digital  Discover Financial

Very good diversification

The 3 months correlation between Compass and Discover is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Compass Digital Acquisition and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Compass Digital 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 Compass Digital Acquisition are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Compass Digital i.e., Compass Digital and Discover Financial go up and down completely randomly.

Pair Corralation between Compass Digital and Discover Financial

Assuming the 90 days horizon Compass Digital Acquisition is expected to generate 13.49 times more return on investment than Discover Financial. However, Compass Digital is 13.49 times more volatile than Discover Financial Services. It trades about 0.05 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.09 per unit of risk. If you would invest  5.00  in Compass Digital Acquisition on March 5, 2024 and sell it today you would earn a total of  0.00  from holding Compass Digital Acquisition or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	30.0%
Values	Daily Returns

Compass Digital Acquisition  vs.  Discover Financial Services

Compass Digital Acqu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Digital Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in July 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Discover Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Discover Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Compass Digital and Discover Financial

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

The idea behind Compass Digital Acquisition and Discover Financial Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.