Correlation Between American Express and ARK Innovation

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

By analyzing existing cross correlation between American Express and ARK Innovation ETF, you can compare the effects of market volatilities on American Express and ARK Innovation 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 ARK Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and ARK Innovation.

Diversification Opportunities for American Express and ARK Innovation

0.14

Correlation Coefficient

American Express  ARK Innovation

Average diversification

The 3 months correlation between American and ARK is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding American Express and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF 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 ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of American Express i.e., American Express and ARK Innovation go up and down completely randomly.

Pair Corralation between American Express and ARK Innovation

Considering the 90-day investment horizon American Express is expected to generate 0.96 times more return on investment than ARK Innovation. However, American Express is 1.04 times less risky than ARK Innovation. It trades about 0.19 of its potential returns per unit of risk. ARK Innovation ETF is currently generating about -0.3 per unit of risk. If you would invest  22,377  in American Express on January 26, 2024 and sell it today you would earn a total of  1,535  from holding American Express or generate 6.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

American Express  vs.  ARK Innovation ETF

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 abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

ARK Innovation ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARK Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, ARK Innovation is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with American Express and ARK Innovation

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

The idea behind American Express and ARK Innovation ETF 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.