Correlation Between American Express and NIKE

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

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

Diversification Opportunities for American Express and NIKE

0.06

Correlation Coefficient

American Express  NIKE

Significant diversification

The 3 months correlation between American and NIKE is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE 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 Co are associated (or correlated) with NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of American Express i.e., American Express and NIKE go up and down completely randomly.

Pair Corralation between American Express and NIKE

Assuming the 90 days trading horizon American Express Co is expected to generate 0.87 times more return on investment than NIKE. However, American Express Co is 1.15 times less risky than NIKE. It trades about 0.04 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.12 per unit of risk. If you would invest  2,140,000  in American Express Co on September 5, 2024 and sell it today you would earn a total of  90,000  from holding American Express Co or generate 4.21% return on investment over 90 days.

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

American Express Co  vs.  NIKE Inc

American Express

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, American Express is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Express and NIKE

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

The idea behind American Express Co and NIKE 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.