Correlation Between American Express and Bank of the

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

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

Diversification Opportunities for American Express and Bank of the

-0.31

Correlation Coefficient

American Express  Bank of the

Very good diversification

The 3 months correlation between American and Bank is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Bank of the in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of the 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 Bank of the. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of the has no effect on the direction of American Express i.e., American Express and Bank of the go up and down completely randomly.

Pair Corralation between American Express and Bank of the

Considering the 90-day investment horizon American Express is expected to generate 0.44 times more return on investment than Bank of the. However, American Express is 2.27 times less risky than Bank of the. It trades about 0.17 of its potential returns per unit of risk. Bank of the is currently generating about 0.03 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

American Express  vs.  Bank of the

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.

Bank of the

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of the are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Bank of the may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Express and Bank of the

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

The idea behind American Express and Bank of the 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.