Correlation Between American Express and Scotch Creek

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

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

Diversification Opportunities for American Express and Scotch Creek

-0.23

Correlation Coefficient

American Express  Scotch Creek

Very good diversification

The 3 months correlation between American and Scotch is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Scotch Creek Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scotch Creek Ventures 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 Scotch Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scotch Creek Ventures has no effect on the direction of American Express i.e., American Express and Scotch Creek go up and down completely randomly.

Pair Corralation between American Express and Scotch Creek

Considering the 90-day investment horizon American Express is expected to under-perform the Scotch Creek. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 10.82 times less risky than Scotch Creek. The stock trades about -0.02 of its potential returns per unit of risk. The Scotch Creek Ventures is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.21  in Scotch Creek Ventures on November 29, 2024 and sell it today you would earn a total of  1.12  from holding Scotch Creek Ventures or generate 50.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

American Express  vs.  Scotch Creek Ventures

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.

Scotch Creek Ventures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scotch Creek Ventures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Scotch Creek reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Scotch Creek

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

The idea behind American Express and Scotch Creek Ventures 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.