Correlation Between NetApp and American Express

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

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

Diversification Opportunities for NetApp and American Express

0.69

Correlation Coefficient

NetApp  American Express

Poor diversification

The 3 months correlation between NetApp and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and NetApp 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 NetApp Inc 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 NetApp i.e., NetApp and American Express go up and down completely randomly.

Pair Corralation between NetApp and American Express

Given the investment horizon of 90 days NetApp Inc is expected to under-perform the American Express. But the stock apears to be less risky and, when comparing its historical volatility, NetApp Inc is 1.36 times less risky than American Express. The stock trades about -0.14 of its potential returns per unit of risk. The American Express is currently generating about 0.19 of returns per unit of risk over similar time horizon. 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	Significant
Accuracy	100.0%
Values	Daily Returns

NetApp Inc  vs.  American Express

NetApp Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, NetApp reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with NetApp and American Express

The main advantage of trading using opposite NetApp and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetApp 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 NetApp Inc 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.

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.