Correlation Between American Express and Pacific Health

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

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

Diversification Opportunities for American Express and Pacific Health

-0.25

Correlation Coefficient

American Express  Pacific Health

Very good diversification

The 3 months correlation between American and Pacific is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Pacific Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Health Care 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 Pacific Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Health Care has no effect on the direction of American Express i.e., American Express and Pacific Health go up and down completely randomly.

Pair Corralation between American Express and Pacific Health

Considering the 90-day investment horizon American Express is expected to generate 0.54 times more return on investment than Pacific Health. However, American Express is 1.86 times less risky than Pacific Health. It trades about 0.14 of its potential returns per unit of risk. Pacific Health Care is currently generating about 0.02 per unit of risk. If you would invest  26,471  in American Express on September 17, 2024 and sell it today you would earn a total of  3,743  from holding American Express or generate 14.14% 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.  Pacific Health Care

American Express

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 11 (%) 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.

Pacific Health Care

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Health Care are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Pacific Health is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Express and Pacific Health

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

The idea behind American Express and Pacific Health Care 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.