Correlation Between American Express and OCCIDENTAL

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

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

Diversification Opportunities for American Express and OCCIDENTAL

-0.79

Correlation Coefficient

American Express  OCCIDENTAL

Pay attention - limited upside

The 3 months correlation between American and OCCIDENTAL is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Express and OCCIDENTAL PETE P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OCCIDENTAL PETE P 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 OCCIDENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OCCIDENTAL PETE P has no effect on the direction of American Express i.e., American Express and OCCIDENTAL go up and down completely randomly.

Pair Corralation between American Express and OCCIDENTAL

Considering the 90-day investment horizon American Express is expected to generate 0.95 times more return on investment than OCCIDENTAL. However, American Express is 1.05 times less risky than OCCIDENTAL. It trades about 0.15 of its potential returns per unit of risk. OCCIDENTAL PETE P is currently generating about 0.05 per unit of risk. If you would invest  27,010  in American Express on October 20, 2024 and sell it today you would earn a total of  4,246  from holding American Express or generate 15.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	54.84%
Values	Daily Returns

American Express  vs.  OCCIDENTAL PETE P

American Express

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

OCCIDENTAL PETE P

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in OCCIDENTAL PETE P are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, OCCIDENTAL 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 OCCIDENTAL

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

The idea behind American Express and OCCIDENTAL PETE P 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 Anywhere module to track or share privately all of your investments from the convenience of any device.