Correlation Between Capital One and American Express

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

By analyzing existing cross correlation between Capital One Financial and American Express, you can compare the effects of market volatilities on Capital One and American Express 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 Capital One with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and American Express.

Diversification Opportunities for Capital One and American Express

0.93

Correlation Coefficient

Capital One  American Express

Almost no diversification

The 3 months correlation between Capital and American is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Capital One 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 Capital One Financial are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Capital One i.e., Capital One and American Express go up and down completely randomly.

Pair Corralation between Capital One and American Express

Assuming the 90 days horizon Capital One Financial is expected to generate 1.58 times more return on investment than American Express. However, Capital One is 1.58 times more volatile than American Express. It trades about 0.15 of its potential returns per unit of risk. American Express is currently generating about 0.16 per unit of risk. If you would invest  13,753  in Capital One Financial on October 10, 2024 and sell it today you would earn a total of  3,847  from holding Capital One Financial or generate 27.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  American Express

Capital One Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and American Express

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

The idea behind Capital One Financial and American Express 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.