Correlation Between American Express and CHIM

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

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

Diversification Opportunities for American Express and CHIM

-0.64

Correlation Coefficient

American Express  CHIM

Excellent diversification

The 3 months correlation between American and CHIM is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding American Express and CHIM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIM 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 CHIM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIM has no effect on the direction of American Express i.e., American Express and CHIM go up and down completely randomly.

Pair Corralation between American Express and CHIM

If you would invest  26,790  in American Express on October 1, 2024 and sell it today you would earn a total of  3,315  from holding American Express or generate 12.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

American Express  vs.  CHIM

American Express

Risk-Adjusted Performance

9 of 100

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CHIM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, CHIM is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Express and CHIM

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

The idea behind American Express and CHIM 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.