Correlation Between American Express and Sonoma Pharmaceuticals

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

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

Diversification Opportunities for American Express and Sonoma Pharmaceuticals

-0.55

Correlation Coefficient

American Express  Sonoma Pharmaceuticals

Excellent diversification

The 3 months correlation between American and Sonoma is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals 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 Sonoma Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoma Pharmaceuticals has no effect on the direction of American Express i.e., American Express and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between American Express and Sonoma Pharmaceuticals

Considering the 90-day investment horizon American Express is expected to under-perform the Sonoma Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 4.68 times less risky than Sonoma Pharmaceuticals. The stock trades about -0.08 of its potential returns per unit of risk. The Sonoma Pharmaceuticals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  275.00  in Sonoma Pharmaceuticals on December 29, 2024 and sell it today you would lose (34.00) from holding Sonoma Pharmaceuticals or give up 12.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Express  vs.  Sonoma Pharmaceuticals

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.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonoma Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sonoma Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and Sonoma Pharmaceuticals

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

The idea behind American Express and Sonoma Pharmaceuticals 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.