Correlation Between American Express and ABIO Old

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

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

Diversification Opportunities for American Express and ABIO Old

-0.32

Correlation Coefficient

American Express  ABIO Old

Very good diversification

The 3 months correlation between American and ABIO is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding American Express and ABIO Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABIO Old 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 ABIO Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABIO Old has no effect on the direction of American Express i.e., American Express and ABIO Old go up and down completely randomly.

Pair Corralation between American Express and ABIO Old

Considering the 90-day investment horizon American Express is expected to generate 0.12 times more return on investment than ABIO Old. However, American Express is 8.2 times less risky than ABIO Old. It trades about 0.17 of its potential returns per unit of risk. ABIO Old is currently generating about -0.02 per unit of risk. If you would invest  15,216  in American Express on October 8, 2024 and sell it today you would earn a total of  15,092  from holding American Express or generate 99.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.14%
Values	Daily Returns

American Express  vs.  ABIO Old

American Express

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

ABIO Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABIO Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, ABIO Old is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Express and ABIO Old

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

The idea behind American Express and ABIO Old 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.