Correlation Between London Security and American Express

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

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

Diversification Opportunities for London Security and American Express

-0.89

Correlation Coefficient

London Security  American Express

Pay attention - limited upside

The 3 months correlation between London and American is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and London Security 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 London Security Plc 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 London Security i.e., London Security and American Express go up and down completely randomly.

Pair Corralation between London Security and American Express

Assuming the 90 days trading horizon London Security Plc is expected to under-perform the American Express. But the stock apears to be less risky and, when comparing its historical volatility, London Security Plc is 1.01 times less risky than American Express. The stock trades about -0.09 of its potential returns per unit of risk. The American Express Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  26,859  in American Express Co on September 23, 2024 and sell it today you would earn a total of  3,109  from holding American Express Co or generate 11.58% return on investment over 90 days.

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

London Security Plc  vs.  American Express Co

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 London Security and American Express

The main advantage of trading using opposite London Security and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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 London Security Plc 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.