Correlation Between American Express and Vale SA

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

Diversification Opportunities for American Express and Vale SA

0.08

Correlation Coefficient

American Express  Vale SA

Significant diversification

The 3 months correlation between American and Vale is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of American Express i.e., American Express and Vale SA go up and down completely randomly.

Pair Corralation between American Express and Vale SA

Assuming the 90 days trading horizon American Express Co is expected to generate 0.93 times more return on investment than Vale SA. However, American Express Co is 1.07 times less risky than Vale SA. It trades about 0.17 of its potential returns per unit of risk. Vale SA is currently generating about 0.05 per unit of risk. If you would invest  363,500  in American Express Co on October 11, 2024 and sell it today you would earn a total of  2,016,500  from holding American Express Co or generate 554.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.58%
Values	Daily Returns

American Express Co  vs.  Vale SA

American Express

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA 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 basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Express and Vale SA

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

The idea behind American Express Co and Vale SA 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.