Correlation Between Bread Financial and Discover Financial

Can any of the company-specific risk be diversified away by investing in both Bread 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 Bread 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 Bread Financial Holdings and Discover Financial Services, you can compare the effects of market volatilities on Bread 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 Bread Financial with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and Discover Financial.

Diversification Opportunities for Bread Financial and Discover Financial

-0.29

Correlation Coefficient

Bread Financial  Discover Financial

Very good diversification

The 3 months correlation between Bread and Discover is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial 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 Bread 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 Bread Financial 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 Bread Financial i.e., Bread Financial and Discover Financial go up and down completely randomly.

Pair Corralation between Bread Financial and Discover Financial

If you would invest  5,142  in Bread Financial Holdings on May 28, 2025 and sell it today you would earn a total of  1,143  from holding Bread Financial Holdings or generate 22.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.61%
Values	Daily Returns

Bread Financial Holdings  vs.  Discover Financial Services

Bread Financial Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Bread Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Discover Financial

Risk-Adjusted Performance

Weakest

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Discover Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bread Financial and Discover Financial

The main advantage of trading using opposite Bread Financial and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread 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 Bread Financial 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.