Correlation Between American Express and Daiichi Sankyo

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

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

Diversification Opportunities for American Express and Daiichi Sankyo

-0.45

Correlation Coefficient

American Express  Daiichi Sankyo

Very good diversification

The 3 months correlation between American and Daiichi is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Daiichi Sankyo Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiichi Sankyo 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 Daiichi Sankyo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiichi Sankyo has no effect on the direction of American Express i.e., American Express and Daiichi Sankyo go up and down completely randomly.

Pair Corralation between American Express and Daiichi Sankyo

Considering the 90-day investment horizon American Express is expected to generate 0.82 times more return on investment than Daiichi Sankyo. However, American Express is 1.21 times less risky than Daiichi Sankyo. It trades about 0.19 of its potential returns per unit of risk. Daiichi Sankyo Co is currently generating about -0.07 per unit of risk. If you would invest  26,935  in American Express on October 24, 2024 and sell it today you would earn a total of  5,290  from holding American Express or generate 19.64% return on investment over 90 days.

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

American Express  vs.  Daiichi Sankyo Co

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.

Daiichi Sankyo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daiichi Sankyo Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with American Express and Daiichi Sankyo

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

The idea behind American Express and Daiichi Sankyo Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.