Correlation Between Netcapital and Discover Financial

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

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

Diversification Opportunities for Netcapital and Discover Financial

-0.35

Correlation Coefficient

Netcapital  Discover Financial

Very good diversification

The 3 months correlation between Netcapital and Discover is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Netcapital and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Netcapital 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 Netcapital 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 Netcapital i.e., Netcapital and Discover Financial go up and down completely randomly.

Pair Corralation between Netcapital and Discover Financial

Given the investment horizon of 90 days Netcapital is expected to generate 6.77 times more return on investment than Discover Financial. However, Netcapital is 6.77 times more volatile than Discover Financial Services. It trades about 0.04 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.05 per unit of risk. If you would invest  15.00  in Netcapital on February 22, 2024 and sell it today you would earn a total of  0.00  from holding Netcapital or generate 0.0% return on investment over 90 days.

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

Netcapital  vs.  Discover Financial Services

Netcapital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Netcapital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Netcapital disclosed solid returns over the last few months and may actually be approaching a breakup point.

Discover Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 4 (%) 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 Netcapital and Discover Financial

The main advantage of trading using opposite Netcapital and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Netcapital 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 Netcapital 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.