Correlation Between American Express and CareRx

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

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

Diversification Opportunities for American Express and CareRx

-0.87

Correlation Coefficient

American Express  CareRx

Pay attention - limited upside

The 3 months correlation between American and CareRx is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding American Express and CareRx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CareRx 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 CareRx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CareRx has no effect on the direction of American Express i.e., American Express and CareRx go up and down completely randomly.

Pair Corralation between American Express and CareRx

Considering the 90-day investment horizon American Express is expected to generate 3.66 times less return on investment than CareRx. But when comparing it to its historical volatility, American Express is 1.44 times less risky than CareRx. It trades about 0.09 of its potential returns per unit of risk. CareRx is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  128.00  in CareRx on October 8, 2024 and sell it today you would earn a total of  12.00  from holding CareRx or generate 9.38% return on investment over 90 days.

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

American Express  vs.  CareRx

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.

CareRx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CareRx has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with American Express and CareRx

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

The idea behind American Express and CareRx 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.