Correlation Between American Express and HEALTHCARE

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

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

Diversification Opportunities for American Express and HEALTHCARE

-0.31

Correlation Coefficient

American Express  HEALTHCARE

Very good diversification

The 3 months correlation between American and HEALTHCARE is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding American Express and HEALTHCARE TRUST OF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEALTHCARE TRUST 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 HEALTHCARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEALTHCARE TRUST has no effect on the direction of American Express i.e., American Express and HEALTHCARE go up and down completely randomly.

Pair Corralation between American Express and HEALTHCARE

Considering the 90-day investment horizon American Express is expected to generate 1.25 times more return on investment than HEALTHCARE. However, American Express is 1.25 times more volatile than HEALTHCARE TRUST OF. It trades about 0.18 of its potential returns per unit of risk. HEALTHCARE TRUST OF is currently generating about -0.12 per unit of risk. If you would invest  25,365  in American Express on September 2, 2024 and sell it today you would earn a total of  5,103  from holding American Express or generate 20.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.13%
Values	Daily Returns

American Express  vs.  HEALTHCARE TRUST OF

American Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

HEALTHCARE TRUST

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEALTHCARE TRUST OF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for HEALTHCARE TRUST OF investors.

Pair Trading with American Express and HEALTHCARE

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

The idea behind American Express and HEALTHCARE TRUST OF 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.