Correlation Between American Express and Avant Brands

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

By analyzing existing cross correlation between American Express and Avant Brands, you can compare the effects of market volatilities on American Express and Avant Brands 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 Avant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Avant Brands.

Diversification Opportunities for American Express and Avant Brands

-0.91

Correlation Coefficient

American Express  Avant Brands

Pay attention - limited upside

The 3 months correlation between American and Avant is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Avant Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avant Brands 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 Avant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avant Brands has no effect on the direction of American Express i.e., American Express and Avant Brands go up and down completely randomly.

Pair Corralation between American Express and Avant Brands

Considering the 90-day investment horizon American Express is expected to generate 0.4 times more return on investment than Avant Brands. However, American Express is 2.48 times less risky than Avant Brands. It trades about 0.17 of its potential returns per unit of risk. Avant Brands is currently generating about -0.26 per unit of risk. If you would invest  25,833  in American Express on September 13, 2024 and sell it today you would earn a total of  4,401  from holding American Express or generate 17.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

American Express  vs.  Avant Brands

American Express

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Avant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avant Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Express and Avant Brands

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

The idea behind American Express and Avant Brands 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.