Can any of the company-specific risk be diversified away by investing in both P10 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 P10 and American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between P10 Inc and American Express, you can compare the effects of market volatilities on P10 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 P10 with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of P10 and American Express.
Diversification Opportunities for P10 and American Express
The 3 months correlation between P10 and American is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding P10 Inc and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and P10 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 P10 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 P10 i.e., P10 and American Express go up and down completely randomly.
Allowing for the 90-day total investment horizon P10 Inc is expected to under-perform the American Express. In addition to that, P10 is 1.48 times more volatile than American Express. It trades about -0.04 of its total potential returns per unit of risk. American Express is currently generating about 0.12 per unit of volatility. If you would invest 22,246 in American Express on March 6, 2024 and sell it today you would earn a total of 1,442 from holding American Express or generate 6.48% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in P10 Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, P10 is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in July 2024.