Correlation Between Synchrony Financial and American Express

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

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

Diversification Opportunities for Synchrony Financial and American Express

-0.46

Correlation Coefficient

Synchrony Financial  American Express

Very good diversification

The 3 months correlation between Synchrony and American is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Synchrony Financial 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 Synchrony 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 Synchrony Financial i.e., Synchrony Financial and American Express go up and down completely randomly.

Pair Corralation between Synchrony Financial and American Express

Assuming the 90 days trading horizon Synchrony Financial is expected to under-perform the American Express. But the preferred stock apears to be less risky and, when comparing its historical volatility, Synchrony Financial is 1.21 times less risky than American Express. The preferred stock trades about -0.15 of its potential returns per unit of risk. The American Express is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  28,554  in American Express on September 19, 2024 and sell it today you would earn a total of  224.00  from holding American Express or generate 0.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Synchrony Financial  vs.  American Express

Synchrony Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

American Express

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Synchrony Financial and American Express

The main advantage of trading using opposite Synchrony Financial and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Synchrony Financial 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 Synchrony 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.