Correlation Between Visa and American Express

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

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

Diversification Opportunities for Visa and American Express

0.94

Correlation Coefficient

Visa  American Express

Almost no diversification

The 3 months correlation between Visa and American is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Visa 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 Visa Inc 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 Visa i.e., Visa and American Express go up and down completely randomly.

Pair Corralation between Visa and American Express

Assuming the 90 days trading horizon Visa Inc is expected to generate 0.62 times more return on investment than American Express. However, Visa Inc is 1.62 times less risky than American Express. It trades about 0.26 of its potential returns per unit of risk. American Express is currently generating about 0.16 per unit of risk. If you would invest  25,363  in Visa Inc on October 10, 2024 and sell it today you would earn a total of  4,902  from holding Visa Inc or generate 19.33% return on investment over 90 days.

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

Visa Inc  vs.  American Express

Visa Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Visa exhibited solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and American Express

The main advantage of trading using opposite Visa and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Inc and American Express 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.