Correlation Between American Express and Provident

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

By analyzing existing cross correlation between American Express and Provident Financial 7405, you can compare the effects of market volatilities on American Express and Provident 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 Provident. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Provident.

Diversification Opportunities for American Express and Provident

0.25

Correlation Coefficient

American Express  Provident

Modest diversification

The 3 months correlation between American and Provident is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Provident Financial 7405 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial 7405 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 Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial 7405 has no effect on the direction of American Express i.e., American Express and Provident go up and down completely randomly.

Pair Corralation between American Express and Provident

Considering the 90-day investment horizon American Express is expected to generate 1.27 times more return on investment than Provident. However, American Express is 1.27 times more volatile than Provident Financial 7405. It trades about 0.18 of its potential returns per unit of risk. Provident Financial 7405 is currently generating about 0.01 per unit of risk. If you would invest  25,365  in American Express on September 2, 2024 and sell it today you would earn a total of  5,103  from holding American Express or generate 20.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	43.75%
Values	Daily Returns

American Express  vs.  Provident Financial 7405

American Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Provident Financial 7405

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Provident Financial 7405 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Provident is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and Provident

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

The idea behind American Express and Provident Financial 7405 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.