Correlation Between Alcoa Corp and American Express

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

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

Diversification Opportunities for Alcoa Corp and American Express

0.2

Correlation Coefficient

Alcoa Corp  American Express

Modest diversification

The 3 months correlation between Alcoa and American is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp i.e., Alcoa Corp and American Express go up and down completely randomly.

Pair Corralation between Alcoa Corp and American Express

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the American Express. In addition to that, Alcoa Corp is 1.96 times more volatile than American Express. It trades about -0.2 of its total potential returns per unit of risk. American Express is currently generating about 0.06 per unit of volatility. If you would invest  29,447  in American Express on October 7, 2024 and sell it today you would earn a total of  861.00  from holding American Express or generate 2.92% return on investment over 90 days.

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

Alcoa Corp  vs.  American Express

Alcoa Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

American Express

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Alcoa Corp and American Express

The main advantage of trading using opposite Alcoa Corp and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp 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 Alcoa Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.