Correlation Between American Express and Principal

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

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

Diversification Opportunities for American Express and Principal

0.91

Correlation Coefficient

American Express  Principal

Almost no diversification

The 3 months correlation between American and Principal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of American Express i.e., American Express and Principal go up and down completely randomly.

Pair Corralation between American Express and Principal

Considering the 90-day investment horizon American Express is expected to generate 1.86 times more return on investment than Principal. However, American Express is 1.86 times more volatile than Principal. It trades about 0.1 of its potential returns per unit of risk. Principal is currently generating about 0.14 per unit of risk. If you would invest  14,387  in American Express on September 20, 2024 and sell it today you would earn a total of  14,969  from holding American Express or generate 104.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	28.43%
Values	Daily Returns

American Express  vs.  Principal

American Express

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 10 (%) 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.

Principal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Principal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Express and Principal

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

The idea behind American Express and Principal 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .