Correlation Between PayPal Holdings and Discover Financial

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Can any of the company-specific risk be diversified away by investing in both PayPal Holdings 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 PayPal Holdings and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PayPal Holdings and Discover Financial Services, you can compare the effects of market volatilities on PayPal Holdings 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 PayPal Holdings with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and Discover Financial.

Diversification Opportunities for PayPal Holdings and Discover Financial

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between PayPal and Discover is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings i.e., PayPal Holdings and Discover Financial go up and down completely randomly.

Pair Corralation between PayPal Holdings and Discover Financial

Given the investment horizon of 90 days PayPal Holdings is expected to generate 3.59 times less return on investment than Discover Financial. In addition to that, PayPal Holdings is 1.07 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 0.2 per unit of volatility. If you would invest  10,547  in Discover Financial Services on December 29, 2023 and sell it today you would earn a total of  2,253  from holding Discover Financial Services or generate 21.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

PayPal Holdings  vs.  Discover Financial Services

 Performance 
       Timeline  
PayPal Holdings 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, PayPal Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Discover Financial 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 7 (%) 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.

PayPal Holdings and Discover Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PayPal Holdings and Discover Financial

The main advantage of trading using opposite PayPal Holdings and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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 PayPal Holdings 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.
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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