Correlation Between American Express and CAPITAL

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

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

Diversification Opportunities for American Express and CAPITAL

-0.37

Correlation Coefficient

American Express  CAPITAL

Very good diversification

The 3 months correlation between American and CAPITAL is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding American Express and CAPITAL ONE FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPITAL ONE FINANCIAL 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 CAPITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPITAL ONE FINANCIAL has no effect on the direction of American Express i.e., American Express and CAPITAL go up and down completely randomly.

Pair Corralation between American Express and CAPITAL

Considering the 90-day investment horizon American Express is expected to generate 1.9 times more return on investment than CAPITAL. However, American Express is 1.9 times more volatile than CAPITAL ONE FINANCIAL. It trades about 0.11 of its potential returns per unit of risk. CAPITAL ONE FINANCIAL is currently generating about -0.03 per unit of risk. If you would invest  27,379  in American Express on October 5, 2024 and sell it today you would earn a total of  2,924  from holding American Express or generate 10.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

American Express  vs.  CAPITAL ONE FINANCIAL

American Express

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CAPITAL ONE FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Express and CAPITAL

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

The idea behind American Express and CAPITAL ONE FINANCIAL 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 Stocks Directory module to find actively traded stocks across global markets.