Correlation Between American Express and Freeport

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

By analyzing existing cross correlation between American Express and Freeport McMoRan 54 percent, you can compare the effects of market volatilities on American Express and Freeport 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 Freeport. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Freeport.

Diversification Opportunities for American Express and Freeport

-0.5

Correlation Coefficient

American Express  Freeport

Very good diversification

The 3 months correlation between American and Freeport is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Freeport McMoRan 54 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of American Express i.e., American Express and Freeport go up and down completely randomly.

Pair Corralation between American Express and Freeport

Considering the 90-day investment horizon American Express is expected to generate 2.1 times more return on investment than Freeport. However, American Express is 2.1 times more volatile than Freeport McMoRan 54 percent. It trades about 0.1 of its potential returns per unit of risk. Freeport McMoRan 54 percent is currently generating about 0.01 per unit of risk. If you would invest  14,346  in American Express on September 19, 2024 and sell it today you would earn a total of  14,432  from holding American Express or generate 100.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

American Express  vs.  Freeport McMoRan 54 percent

American Express

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 54 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freeport is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and Freeport

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

The idea behind American Express and Freeport McMoRan 54 percent 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.