Correlation Between American Express and Western Union

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

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

Diversification Opportunities for American Express and Western Union

0.04

Correlation Coefficient

American Express  Western Union

Significant diversification

The 3 months correlation between American and Western is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding American Express and The Western Union in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Union 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 Western Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Union has no effect on the direction of American Express i.e., American Express and Western Union go up and down completely randomly.

Pair Corralation between American Express and Western Union

Assuming the 90 days trading horizon American Express is expected to generate 1.33 times less return on investment than Western Union. But when comparing it to its historical volatility, American Express is 1.14 times less risky than Western Union. It trades about 0.14 of its potential returns per unit of risk. The Western Union is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,291  in The Western Union on September 23, 2024 and sell it today you would earn a total of  334.00  from holding The Western Union or generate 5.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

American Express  vs.  The Western Union

American Express

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Union

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Western Union are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Western Union 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 Western Union

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

The idea behind American Express and The Western Union 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.