Correlation Between American Express and Alpha Lithium

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

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

Diversification Opportunities for American Express and Alpha Lithium

-0.37

Correlation Coefficient

American Express  Alpha Lithium

Very good diversification

The 3 months correlation between American and Alpha is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Alpha Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Lithium 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 Alpha Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Lithium has no effect on the direction of American Express i.e., American Express and Alpha Lithium go up and down completely randomly.

Pair Corralation between American Express and Alpha Lithium

Considering the 90-day investment horizon American Express is expected to generate 2.14 times less return on investment than Alpha Lithium. But when comparing it to its historical volatility, American Express is 7.57 times less risky than Alpha Lithium. It trades about 0.18 of its potential returns per unit of risk. Alpha Lithium is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Alpha Lithium on September 2, 2024 and sell it today you would lose (1.00) from holding Alpha Lithium or give up 5.88% of portfolio value over 90 days.

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

American Express  vs.  Alpha Lithium

American Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Alpha Lithium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Lithium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Alpha Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Alpha Lithium

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

The idea behind American Express and Alpha Lithium 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.