Correlation Between American Express and DISCOVERY

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

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

Diversification Opportunities for American Express and DISCOVERY

-0.27

Correlation Coefficient

American Express  DISCOVERY

Very good diversification

The 3 months correlation between American and DISCOVERY is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding American Express and DISCOVERY MUNICATIONS LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DISCOVERY MUNICATIONS LLC 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 DISCOVERY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DISCOVERY MUNICATIONS LLC has no effect on the direction of American Express i.e., American Express and DISCOVERY go up and down completely randomly.

Pair Corralation between American Express and DISCOVERY

Considering the 90-day investment horizon American Express is expected to under-perform the DISCOVERY. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 1.3 times less risky than DISCOVERY. The stock trades about -0.02 of its potential returns per unit of risk. The DISCOVERY MUNICATIONS LLC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,866  in DISCOVERY MUNICATIONS LLC on December 4, 2024 and sell it today you would earn a total of  121.00  from holding DISCOVERY MUNICATIONS LLC or generate 1.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	37.29%
Values	Daily Returns

American Express  vs.  DISCOVERY MUNICATIONS LLC

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.

DISCOVERY MUNICATIONS LLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DISCOVERY MUNICATIONS LLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DISCOVERY 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 DISCOVERY

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

The idea behind American Express and DISCOVERY MUNICATIONS LLC 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.