Correlation Between American Express and Charter Communications

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

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

Diversification Opportunities for American Express and Charter Communications

0.87

Correlation Coefficient

American Express  Charter Communications

Very poor diversification

The 3 months correlation between American and Charter is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of American Express i.e., American Express and Charter Communications go up and down completely randomly.

Pair Corralation between American Express and Charter Communications

Assuming the 90 days trading horizon American Express is expected to generate 0.73 times more return on investment than Charter Communications. However, American Express is 1.37 times less risky than Charter Communications. It trades about 0.2 of its potential returns per unit of risk. Charter Communications is currently generating about 0.11 per unit of risk. If you would invest  14,307  in American Express on September 12, 2024 and sell it today you would earn a total of  3,993  from holding American Express or generate 27.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

American Express  vs.  Charter Communications

American Express

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Charter Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Charter Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Charter Communications

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

The idea behind American Express and Charter Communications 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.