Correlation Between Affiliated Managers and American Express

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

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

Diversification Opportunities for Affiliated Managers and American Express

0.84

Correlation Coefficient

Affiliated Managers  American Express

Very poor diversification

The 3 months correlation between Affiliated and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Affiliated Managers Group and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Affiliated Managers 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 Affiliated Managers Group 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 Affiliated Managers i.e., Affiliated Managers and American Express go up and down completely randomly.

Pair Corralation between Affiliated Managers and American Express

Considering the 90-day investment horizon Affiliated Managers is expected to generate 1.58 times less return on investment than American Express. But when comparing it to its historical volatility, Affiliated Managers Group is 1.21 times less risky than American Express. It trades about 0.05 of its potential returns per unit of risk. American Express is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  21,183  in American Express on January 19, 2024 and sell it today you would earn a total of  584.00  from holding American Express or generate 2.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.62%
Values	Daily Returns

Affiliated Managers Group  vs.  American Express

Affiliated Managers

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Affiliated Managers Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Affiliated Managers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American Express

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Affiliated Managers and American Express

The main advantage of trading using opposite Affiliated Managers and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Affiliated Managers 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 Affiliated Managers Group 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.