Correlation Between Diversified Energy and American Express

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

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

Diversification Opportunities for Diversified Energy and American Express

0.92

Correlation Coefficient

Diversified Energy  American Express

Almost no diversification

The 3 months correlation between Diversified and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Diversified Energy 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 Diversified Energy are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Diversified Energy i.e., Diversified Energy and American Express go up and down completely randomly.

Pair Corralation between Diversified Energy and American Express

Assuming the 90 days trading horizon Diversified Energy is expected to generate 40.05 times more return on investment than American Express. However, Diversified Energy is 40.05 times more volatile than American Express Co. It trades about 0.06 of its potential returns per unit of risk. American Express Co is currently generating about 0.1 per unit of risk. If you would invest  11,640  in Diversified Energy on September 23, 2024 and sell it today you would earn a total of  110,360  from holding Diversified Energy or generate 948.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.21%
Values	Daily Returns

Diversified Energy  vs.  American Express Co

Diversified Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diversified Energy and American Express

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

The idea behind Diversified Energy and American Express Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.