Correlation Between American Express and Plum Acquisition

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

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

Diversification Opportunities for American Express and Plum Acquisition

-0.43

Correlation Coefficient

American Express  Plum Acquisition

Very good diversification

The 3 months correlation between American and Plum is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Plum Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plum Acquisition 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 Plum Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plum Acquisition Corp has no effect on the direction of American Express i.e., American Express and Plum Acquisition go up and down completely randomly.

Pair Corralation between American Express and Plum Acquisition

Considering the 90-day investment horizon American Express is expected to generate 111.21 times less return on investment than Plum Acquisition. But when comparing it to its historical volatility, American Express is 100.07 times less risky than Plum Acquisition. It trades about 0.14 of its potential returns per unit of risk. Plum Acquisition Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Plum Acquisition Corp on September 17, 2024 and sell it today you would earn a total of  15.00  from holding Plum Acquisition Corp or generate 150.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	56.68%
Values	Daily Returns

American Express  vs.  Plum Acquisition Corp

American Express

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 11 (%) 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.

Plum Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plum Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, Plum Acquisition is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Express and Plum Acquisition

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

The idea behind American Express and Plum Acquisition 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.