Correlation Between American Express and Otsuka Holdings

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

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

Diversification Opportunities for American Express and Otsuka Holdings

0.1

Correlation Coefficient

American Express  Otsuka Holdings

Average diversification

The 3 months correlation between American and Otsuka is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Otsuka Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otsuka Holdings 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 Otsuka Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otsuka Holdings has no effect on the direction of American Express i.e., American Express and Otsuka Holdings go up and down completely randomly.

Pair Corralation between American Express and Otsuka Holdings

Considering the 90-day investment horizon American Express is expected to under-perform the Otsuka Holdings. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 1.0 times less risky than Otsuka Holdings. The stock trades about -0.09 of its potential returns per unit of risk. The Otsuka Holdings Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,709  in Otsuka Holdings Co on December 20, 2024 and sell it today you would lose (27.00) from holding Otsuka Holdings Co or give up 1.0% of portfolio value over 90 days.

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

American Express  vs.  Otsuka Holdings Co

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 latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Otsuka Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Otsuka Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Otsuka Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and Otsuka Holdings

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

The idea behind American Express and Otsuka Holdings 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.