Correlation Between American Express and Weed

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

Diversification Opportunities for American Express and Weed

AmericanWeedDiversified AwayAmericanWeedDiversified Away100%
-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between American and Weed is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Weed Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weed Inc 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 Weed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weed Inc has no effect on the direction of American Express i.e., American Express and Weed go up and down completely randomly.

Pair Corralation between American Express and Weed

Considering the 90-day investment horizon American Express is expected to generate 2.2 times less return on investment than Weed. But when comparing it to its historical volatility, American Express is 8.25 times less risky than Weed. It trades about 0.12 of its potential returns per unit of risk. Weed Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Weed Inc on September 25, 2024 and sell it today you would lose (1.00) from holding Weed Inc or give up 25.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

American Express  vs.  Weed Inc

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -20-1001020
JavaScript chart by amCharts 3.21.15AXP BUDZ
       Timeline  
American Express 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 9 (%) 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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec265270275280285290295300305
Weed Inc 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Weed Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Weed showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.030.0350.040.0450.050.0550.06

American Express and Weed Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.03-3.77-2.51-1.240.01.342.674.015.34 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15AXP BUDZ
       Returns  

Pair Trading with American Express and Weed

The main advantage of trading using opposite American Express and Weed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Weed 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 Weed will offset losses from the drop in Weed's long position.
The idea behind American Express and Weed Inc 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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