Correlation Between American Express and ICON PLC

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

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

Diversification Opportunities for American Express and ICON PLC

0.81

Correlation Coefficient

American Express ICON PLC

Very poor diversification

The 3 months correlation between American and ICON is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Express and ICON PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICON PLC 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 ICON PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICON PLC has no effect on the direction of American Express i.e., American Express and ICON PLC go up and down completely randomly.

Pair Corralation between American Express and ICON PLC

Considering the 90-day investment horizon American Express is expected to generate 1.01 times more return on investment than ICON PLC. However, American Express is 1.01 times more volatile than ICON PLC. It trades about 0.01 of its potential returns per unit of risk. ICON PLC is currently generating about -0.01 per unit of risk. If you would invest  15,647  in American Express on February 28, 2023 and sell it today you would earn a total of  77.00  from holding American Express or generate 0.49% return on investment over 90 days.

American Express  vs.  ICON PLC

American Express

American Performance

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Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

ICON PLC

ICON Performance

0 of 100

Over the last 90 days ICON PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with American Express and ICON PLC

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

The idea behind American Express and ICON PLC 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .