Correlation Between American Express and NVIDIA

Can any of the company-specific risk be diversified away by investing in both American Express and NVIDIA 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 NVIDIA 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 NVIDIA, you can compare the effects of market volatilities on American Express and NVIDIA 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 NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and NVIDIA.

Diversification Opportunities for American Express and NVIDIA

0.45

Correlation Coefficient

American Express  NVIDIA

Very weak diversification

The 3 months correlation between American and NVIDIA is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of American Express i.e., American Express and NVIDIA go up and down completely randomly.

Pair Corralation between American Express and NVIDIA

Assuming the 90 days trading horizon American Express Co is expected to generate 0.49 times more return on investment than NVIDIA. However, American Express Co is 2.02 times less risky than NVIDIA. It trades about 0.01 of its potential returns per unit of risk. NVIDIA is currently generating about -0.04 per unit of risk. If you would invest  2,359,995  in American Express Co on December 28, 2024 and sell it today you would earn a total of  5.00  from holding American Express Co or generate 0.0% return on investment over 90 days.

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

American Express Co  vs.  NVIDIA

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Pair Trading with American Express and NVIDIA

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

The idea behind American Express Co and NVIDIA 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.