Correlation Between American Express and IShares US

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Can any of the company-specific risk be diversified away by investing in both American Express and IShares US 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 IShares US into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and IShares US ETF, you can compare the effects of market volatilities on American Express and IShares US 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 IShares US. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and IShares US.

Diversification Opportunities for American Express and IShares US

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Express and IShares US ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares US ETF 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 IShares US. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares US ETF has no effect on the direction of American Express i.e., American Express and IShares US go up and down completely randomly.

Pair Corralation between American Express and IShares US

Considering the 90-day investment horizon American Express is expected to generate 2.8 times more return on investment than IShares US. However, American Express is 2.8 times more volatile than IShares US ETF. It trades about 0.17 of its potential returns per unit of risk. IShares US ETF is currently generating about 0.28 per unit of risk. If you would invest  14,698  in American Express on September 7, 2022 and sell it today you would earn a total of  968.00  from holding American Express or generate 6.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.24%
ValuesDaily Returns

American Express  vs.  IShares US ETF

 Performance (%) 
       Timeline  
American Express 
American Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, American Express is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the insiders.

American Price Channel

IShares US ETF 
IShares Performance
0 of 100
Over the last 90 days IShares US ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, IShares US is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IShares Price Channel

American Express and IShares US Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and IShares US

The main advantage of trading using opposite American Express and IShares US positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, IShares US 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 IShares US will offset losses from the drop in IShares US's long position.
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The idea behind American Express and IShares US ETF 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against IShares US as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. IShares US's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, IShares US's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to IShares US ETF.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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