Correlation Between American Express and Lakeshore Acquisition

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

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

Diversification Opportunities for American Express and Lakeshore Acquisition

-0.71

Correlation Coefficient

American Express  Lakeshore Acquisition

Pay attention - limited upside

The 3 months correlation between American and Lakeshore is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Lakeshore Acquisition II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakeshore Acquisition 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 Lakeshore Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakeshore Acquisition has no effect on the direction of American Express i.e., American Express and Lakeshore Acquisition go up and down completely randomly.

Pair Corralation between American Express and Lakeshore Acquisition

Considering the 90-day investment horizon American Express is expected to generate 9.76 times less return on investment than Lakeshore Acquisition. But when comparing it to its historical volatility, American Express is 17.3 times less risky than Lakeshore Acquisition. It trades about 0.1 of its potential returns per unit of risk. Lakeshore Acquisition II is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Lakeshore Acquisition II on September 16, 2024 and sell it today you would lose (3.01) from holding Lakeshore Acquisition II or give up 60.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	12.5%
Values	Daily Returns

American Express  vs.  Lakeshore Acquisition II

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) 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.

Lakeshore Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lakeshore Acquisition II has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, Lakeshore Acquisition is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Express and Lakeshore Acquisition

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

The idea behind American Express and Lakeshore Acquisition II 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.