Correlation Between American Express and Federal National

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

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

Diversification Opportunities for American Express and Federal National

0.65

Correlation Coefficient

American Express  Federal National

Poor diversification

The 3 months correlation between American and Federal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage 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 Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of American Express i.e., American Express and Federal National go up and down completely randomly.

Pair Corralation between American Express and Federal National

Considering the 90-day investment horizon American Express is expected to generate 0.14 times more return on investment than Federal National. However, American Express is 7.31 times less risky than Federal National. It trades about -0.2 of its potential returns per unit of risk. Federal National Mortgage is currently generating about -0.16 per unit of risk. If you would invest  22,721  in American Express on January 20, 2024 and sell it today you would lose (971.00) from holding American Express or give up 4.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

American Express  vs.  Federal National Mortgage

American Express

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 16 (%) 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.

Federal National Mortgage

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Federal National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and Federal National

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

The idea behind American Express and Federal National Mortgage 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.