Correlation Between American Express and All American

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

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

Diversification Opportunities for American Express and All American

0.56

Correlation Coefficient

American Express  All American

Very weak diversification

The 3 months correlation between American and All is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding American Express and All American Gld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on All American Gld 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 All American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of All American Gld has no effect on the direction of American Express i.e., American Express and All American go up and down completely randomly.

Pair Corralation between American Express and All American

Considering the 90-day investment horizon American Express is expected to under-perform the All American. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 6.22 times less risky than All American. The stock trades about -0.09 of its potential returns per unit of risk. The All American Gld is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  0.13  in All American Gld on December 27, 2024 and sell it today you would lose (0.04) from holding All American Gld or give up 30.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

American Express  vs.  All American Gld

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. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

All American Gld

Risk-Adjusted Performance

Very Weak

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

Pair Trading with American Express and All American

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

The idea behind American Express and All American Gld 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.