Correlation Between American Express and BankFirst Capital

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

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

Diversification Opportunities for American Express and BankFirst Capital

0.85

Correlation Coefficient

American Express  BankFirst Capital

Very poor diversification

The 3 months correlation between American and BankFirst is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Express and BankFirst Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFirst Capital 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 BankFirst Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFirst Capital has no effect on the direction of American Express i.e., American Express and BankFirst Capital go up and down completely randomly.

Pair Corralation between American Express and BankFirst Capital

Considering the 90-day investment horizon American Express is expected to generate 1.07 times more return on investment than BankFirst Capital. However, American Express is 1.07 times more volatile than BankFirst Capital. It trades about 0.16 of its potential returns per unit of risk. BankFirst Capital is currently generating about 0.13 per unit of risk. If you would invest  26,150  in American Express on September 18, 2024 and sell it today you would earn a total of  4,207  from holding American Express or generate 16.09% return on investment over 90 days.

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

American Express  vs.  BankFirst Capital

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) 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.

BankFirst Capital

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BankFirst Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, BankFirst Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Express and BankFirst Capital

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

The idea behind American Express and BankFirst Capital 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.