Correlation Between Citizens Financial and Discover Financial

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

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

Diversification Opportunities for Citizens Financial and Discover Financial

0.54

Correlation Coefficient

Citizens Financial  Discover Financial

Very weak diversification

The 3 months correlation between Citizens and Discover is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Citizens 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 Citizens Financial Group 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 Citizens Financial i.e., Citizens Financial and Discover Financial go up and down completely randomly.

Pair Corralation between Citizens Financial and Discover Financial

Considering the 90-day investment horizon Citizens Financial Group is expected to under-perform the Discover Financial. In addition to that, Citizens Financial is 1.3 times more volatile than Discover Financial Services. It trades about -0.05 of its total potential returns per unit of risk. Discover Financial Services is currently generating about -0.03 per unit of volatility. If you would invest  12,577  in Discover Financial Services on January 20, 2024 and sell it today you would lose (150.00) from holding Discover Financial Services or give up 1.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Citizens Financial Group  vs.  Discover Financial Services

Citizens Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Discover Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 13 (%) 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.

Pair Trading with Citizens Financial and Discover Financial

The main advantage of trading using opposite Citizens Financial and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial 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 Citizens Financial Group 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 Commodity Directory module to find actively traded commodities issued by global exchanges.