Correlation Between American Express and Visa

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

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

Diversification Opportunities for American Express and Visa

0.36

Correlation Coefficient

American Express  Visa

Weak diversification

The 3 months correlation between American and Visa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of American Express i.e., American Express and Visa go up and down completely randomly.

Pair Corralation between American Express and Visa

Assuming the 90 days trading horizon American Express is expected to generate 25.7 times less return on investment than Visa. In addition to that, American Express is 1.51 times more volatile than Visa Inc. It trades about 0.01 of its total potential returns per unit of risk. Visa Inc is currently generating about 0.27 per unit of volatility. If you would invest  30,020  in Visa Inc on December 1, 2024 and sell it today you would earn a total of  4,850  from holding Visa Inc or generate 16.16% return on investment over 90 days.

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

American Express  vs.  Visa Inc

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, American Express is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Visa Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Visa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Visa

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

The idea behind American Express and Visa Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.