Correlation Between American Express and 58013MEV2

Can any of the company-specific risk be diversified away by investing in both American Express and 58013MEV2 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 58013MEV2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Express and MCDONALDS P MEDIUM, you can compare the effects of market volatilities on American Express and 58013MEV2 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 58013MEV2. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and 58013MEV2.

Diversification Opportunities for American Express and 58013MEV2

-0.66

Correlation Coefficient

American Express  58013MEV2

Excellent diversification

The 3 months correlation between American and 58013MEV2 is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding American Express and MCDONALDS P MEDIUM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCDONALDS P MEDIUM 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 58013MEV2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCDONALDS P MEDIUM has no effect on the direction of American Express i.e., American Express and 58013MEV2 go up and down completely randomly.

Pair Corralation between American Express and 58013MEV2

Considering the 90-day investment horizon American Express is expected to under-perform the 58013MEV2. In addition to that, American Express is 1.5 times more volatile than MCDONALDS P MEDIUM. It trades about -0.02 of its total potential returns per unit of risk. MCDONALDS P MEDIUM is currently generating about -0.02 per unit of volatility. If you would invest  9,025  in MCDONALDS P MEDIUM on November 29, 2024 and sell it today you would lose (111.00) from holding MCDONALDS P MEDIUM or give up 1.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	79.66%
Values	Daily Returns

American Express  vs.  MCDONALDS P MEDIUM

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.

MCDONALDS P MEDIUM

Risk-Adjusted Performance

Very Weak

Over the last 90 days MCDONALDS P MEDIUM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 58013MEV2 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 58013MEV2

The main advantage of trading using opposite American Express and 58013MEV2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, 58013MEV2 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 58013MEV2 will offset losses from the drop in 58013MEV2's long position.

The idea behind American Express and MCDONALDS P MEDIUM 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.