Correlation Between American Express and Hostess Brands

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

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

Diversification Opportunities for American Express and Hostess Brands

-0.38

Correlation Coefficient

American Express  Hostess Brands

Very good diversification

The 3 months correlation between American and Hostess is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Hostess Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hostess Brands 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 Hostess Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hostess Brands has no effect on the direction of American Express i.e., American Express and Hostess Brands go up and down completely randomly.

Pair Corralation between American Express and Hostess Brands

Considering the 90-day investment horizon American Express is expected to generate 1.13 times more return on investment than Hostess Brands. However, American Express is 1.13 times more volatile than Hostess Brands. It trades about 0.1 of its potential returns per unit of risk. Hostess Brands is currently generating about 0.04 per unit of risk. If you would invest  14,659  in American Express on September 25, 2024 and sell it today you would earn a total of  15,221  from holding American Express or generate 103.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.02%
Values	Daily Returns

American Express  vs.  Hostess Brands

American Express

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 9 (%) 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.

Hostess Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hostess Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hostess Brands is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with American Express and Hostess Brands

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

The idea behind American Express and Hostess Brands 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.