Correlation Between Western Union and American Express

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

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

Diversification Opportunities for Western Union and American Express

-0.78

Correlation Coefficient

Western Union  American Express

Pay attention - limited upside

The 3 months correlation between Western and American is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding The Western Union and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Western Union 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 The Western Union 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 Western Union i.e., Western Union and American Express go up and down completely randomly.

Pair Corralation between Western Union and American Express

Assuming the 90 days horizon Western Union is expected to generate 272.5 times less return on investment than American Express. But when comparing it to its historical volatility, The Western Union is 1.04 times less risky than American Express. It trades about 0.0 of its potential returns per unit of risk. American Express is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  283,814  in American Express on September 24, 2024 and sell it today you would earn a total of  312,252  from holding American Express or generate 110.02% return on investment over 90 days.

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

The Western Union  vs.  American Express

Western Union

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Western Union has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, American Express showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Union and American Express

The main advantage of trading using opposite Western Union and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Union 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 The Western Union 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.