Correlation Between American States and Synchrony Financial

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

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

Diversification Opportunities for American States and Synchrony Financial

0.44

Correlation Coefficient

American States  Synchrony Financial

Very weak diversification

The 3 months correlation between American and Synchrony is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial and American States 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 States Water are associated (or correlated) with Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of American States i.e., American States and Synchrony Financial go up and down completely randomly.

Pair Corralation between American States and Synchrony Financial

Assuming the 90 days horizon American States Water is expected to under-perform the Synchrony Financial. But the stock apears to be less risky and, when comparing its historical volatility, American States Water is 1.49 times less risky than Synchrony Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Synchrony Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,042  in Synchrony Financial on October 11, 2024 and sell it today you would earn a total of  3,394  from holding Synchrony Financial or generate 111.57% return on investment over 90 days.

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

American States Water  vs.  Synchrony Financial

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Synchrony Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Synchrony Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American States and Synchrony Financial

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

The idea behind American States Water and Synchrony Financial 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.