Correlation Between American Express and ECN Capital

Can any of the company-specific risk be diversified away by investing in both American Express and ECN 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 ECN 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 ECN Capital Corp, you can compare the effects of market volatilities on American Express and ECN 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 ECN Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and ECN Capital.

Diversification Opportunities for American Express and ECN Capital

0.86

Correlation Coefficient

American Express  ECN Capital

Very poor diversification

The 3 months correlation between American and ECN is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Express and ECN Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECN Capital Corp 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 ECN Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECN Capital Corp has no effect on the direction of American Express i.e., American Express and ECN Capital go up and down completely randomly.

Pair Corralation between American Express and ECN Capital

Considering the 90-day investment horizon American Express is expected to generate 0.39 times more return on investment than ECN Capital. However, American Express is 2.56 times less risky than ECN Capital. It trades about 0.23 of its potential returns per unit of risk. ECN Capital Corp is currently generating about 0.09 per unit of risk. If you would invest  28,555  in American Express on September 20, 2024 and sell it today you would earn a total of  1,579  from holding American Express or generate 5.53% 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.  ECN Capital Corp

American Express

Risk-Adjusted Performance

10 of 100

Modest

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ECN Capital Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ECN Capital Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, ECN Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and ECN Capital

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

The idea behind American Express and ECN Capital Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.