Correlation Between EuroDry and American Express
Can any of the company-specific risk be diversified away by investing in both EuroDry 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 EuroDry and American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EuroDry and American Express, you can compare the effects of market volatilities on EuroDry 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 EuroDry with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of EuroDry and American Express.
Diversification Opportunities for EuroDry and American Express
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between EuroDry and American is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and EuroDry 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 EuroDry 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 EuroDry i.e., EuroDry and American Express go up and down completely randomly.
Pair Corralation between EuroDry and American Express
Given the investment horizon of 90 days EuroDry is expected to under-perform the American Express. But the stock apears to be less risky and, when comparing its historical volatility, EuroDry is 1.25 times less risky than American Express. The stock trades about -0.19 of its potential returns per unit of risk. The American Express is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 22,533 in American Express on January 25, 2024 and sell it today you would earn a total of 1,517 from holding American Express or generate 6.73% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
EuroDry vs. American Express
Performance |
Timeline |
EuroDry |
American Express |
EuroDry and American Express Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with EuroDry and American Express
The main advantage of trading using opposite EuroDry and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EuroDry 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 EuroDry 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.American Express vs. Visa Class A | American Express vs. PayPal Holdings | American Express vs. Capital One Financial | American Express vs. Upstart HoldingsInc |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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