Correlation Between American Express and Universal Power

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

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

Diversification Opportunities for American Express and Universal Power

0.42

Correlation Coefficient

American Express  Universal Power

Very weak diversification

The 3 months correlation between American and Universal is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Universal Power Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Power Industry 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 Universal Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Power Industry has no effect on the direction of American Express i.e., American Express and Universal Power go up and down completely randomly.

Pair Corralation between American Express and Universal Power

Considering the 90-day investment horizon American Express is expected to generate 0.23 times more return on investment than Universal Power. However, American Express is 4.33 times less risky than Universal Power. It trades about -0.1 of its potential returns per unit of risk. Universal Power Industry is currently generating about -0.12 per unit of risk. If you would invest  29,663  in American Express on December 30, 2024 and sell it today you would lose (3,115) from holding American Express or give up 10.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.38%
Values	Daily Returns

American Express  vs.  Universal Power Industry

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.

Universal Power Industry

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Power Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with American Express and Universal Power

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

The idea behind American Express and Universal Power Industry 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 Transaction History module to view history of all your transactions and understand their impact on performance.