Correlation Between Fifth Third and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Fifth Third 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 Fifth Third and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and Discover Financial Services, you can compare the effects of market volatilities on Fifth Third 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 Fifth Third with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Discover Financial.
Diversification Opportunities for Fifth Third and Discover Financial
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fifth and Discover is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Fifth Third 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 Fifth Third Bancorp 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 Fifth Third i.e., Fifth Third and Discover Financial go up and down completely randomly.
Pair Corralation between Fifth Third and Discover Financial
Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 1.4 times more return on investment than Discover Financial. However, Fifth Third is 1.4 times more volatile than Discover Financial Services. It trades about 0.11 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.1 per unit of risk. If you would invest 3,568 in Fifth Third Bancorp on January 26, 2024 and sell it today you would earn a total of 155.00 from holding Fifth Third Bancorp or generate 4.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Fifth Third Bancorp vs. Discover Financial Services
Performance |
Timeline |
Fifth Third Bancorp |
Discover Financial |
Fifth Third and Discover Financial Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Fifth Third and Discover Financial
The main advantage of trading using opposite Fifth Third and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third 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.Fifth Third vs. KeyCorp | Fifth Third vs. Regions Financial | Fifth Third vs. New York Community | Fifth Third vs. Zions Bancorporation |
Discover Financial vs. Ally Financial | Discover Financial vs. Synchrony Financial | Discover Financial vs. Western Union Co | Discover Financial vs. Bread Financial Holdings |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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