Correlation Between American Express and American Airlines
Can any of the company-specific risk be diversified away by investing in both American Express and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and American Airlines Group, you can compare the effects of market volatilities on American Express and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and American Airlines.
Diversification Opportunities for American Express and American Airlines
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and American is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding American Express and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of American Express i.e., American Express and American Airlines go up and down completely randomly.
Pair Corralation between American Express and American Airlines
Considering the 90-day investment horizon American Express is expected to generate 0.5 times more return on investment than American Airlines. However, American Express is 1.99 times less risky than American Airlines. It trades about -0.03 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.16 per unit of risk. If you would invest 22,029 in American Express on January 17, 2024 and sell it today you would lose (189.00) from holding American Express or give up 0.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. American Airlines Group
Performance |
| Timeline |
| American Express |
| American Airlines |
American Express and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and American Airlines
The main advantage of trading using opposite American Express and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, American Airlines 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 Airlines will offset losses from the drop in American Airlines' long position.| American Express vs. Visa Class A | American Express vs. PayPal Holdings | American Express vs. Mastercard |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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