Correlation Between American Express and 88 Energy

Can any of the company-specific risk be diversified away by investing in both American Express and 88 Energy 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 88 Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Express and 88 Energy Limited, you can compare the effects of market volatilities on American Express and 88 Energy 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 88 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and 88 Energy.

Diversification Opportunities for American Express and 88 Energy

0.21

Correlation Coefficient

American Express  88 Energy

Modest diversification

The 3 months correlation between American and EEENF is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding American Express and 88 Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 88 Energy Limited 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 88 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 88 Energy Limited has no effect on the direction of American Express i.e., American Express and 88 Energy go up and down completely randomly.

Pair Corralation between American Express and 88 Energy

Considering the 90-day investment horizon American Express is expected to generate 0.22 times more return on investment than 88 Energy. However, American Express is 4.52 times less risky than 88 Energy. It trades about 0.09 of its potential returns per unit of risk. 88 Energy Limited is currently generating about 0.02 per unit of risk. If you would invest  24,285  in American Express on December 5, 2024 and sell it today you would earn a total of  4,133  from holding American Express or generate 17.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.19%
Values	Daily Returns

American Express  vs.  88 Energy Limited

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American Express is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

88 Energy Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days 88 Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, 88 Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Express and 88 Energy

The main advantage of trading using opposite American Express and 88 Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, 88 Energy 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 88 Energy will offset losses from the drop in 88 Energy's long position.

The idea behind American Express and 88 Energy Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.