Correlation Between American Express and Aberdeen Income

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

By analyzing existing cross correlation between American Express and Aberdeen Income Credit, you can compare the effects of market volatilities on American Express and Aberdeen Income 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 American Express with a short position of Aberdeen Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Aberdeen Income.

Diversification Opportunities for American Express and Aberdeen Income

0.78

Correlation Coefficient

American Express  Aberdeen Income

Poor diversification

The 3 months correlation between American and Aberdeen is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Aberdeen Income Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Income Credit and American Express 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 American Express are associated (or correlated) with Aberdeen Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Income Credit has no effect on the direction of American Express i.e., American Express and Aberdeen Income go up and down completely randomly.

Pair Corralation between American Express and Aberdeen Income

Considering the 90-day investment horizon American Express is expected to generate 4.62 times more return on investment than Aberdeen Income. However, American Express is 4.62 times more volatile than Aberdeen Income Credit. It trades about 0.28 of its potential returns per unit of risk. Aberdeen Income Credit is currently generating about 0.18 per unit of risk. If you would invest  27,269  in American Express on September 2, 2024 and sell it today you would earn a total of  3,199  from holding American Express or generate 11.73% return on investment over 90 days.

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

American Express  vs.  Aberdeen Income Credit

American Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Aberdeen Income Credit

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aberdeen Income Credit are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. Even with relatively invariable fundamental indicators, Aberdeen Income is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Express and Aberdeen Income

The main advantage of trading using opposite American Express and Aberdeen Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Aberdeen Income 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 Aberdeen Income will offset losses from the drop in Aberdeen Income's long position.

The idea behind American Express and Aberdeen Income Credit 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.