Correlation Between American Express and Aerojet Rocketdyne

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

Diversification Opportunities for American Express and Aerojet Rocketdyne

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and Aerojet is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Aerojet Rocketdyne Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerojet Rocketdyne 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 Aerojet Rocketdyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerojet Rocketdyne has no effect on the direction of American Express i.e., American Express and Aerojet Rocketdyne go up and down completely randomly.

Pair Corralation between American Express and Aerojet Rocketdyne

Considering the 90-day investment horizon American Express is expected to generate 1.15 times more return on investment than Aerojet Rocketdyne. However, American Express is 1.15 times more volatile than Aerojet Rocketdyne Holdings. It trades about 0.03 of its potential returns per unit of risk. Aerojet Rocketdyne Holdings is currently generating about 0.03 per unit of risk. If you would invest  12,412  in American Express on September 8, 2022 and sell it today you would earn a total of  3,157  from holding American Express or generate 25.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.79%
ValuesDaily Returns

American Express  vs.  Aerojet Rocketdyne Holdings

 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 newest stock price disarray, may contribute to short-term losses for the insiders.

American Price Channel

Aerojet Rocketdyne 
Aerojet Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aerojet Rocketdyne Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Aerojet Rocketdyne exhibited solid returns over the last few months and may actually be approaching a breakup point.

Aerojet Price Channel

American Express and Aerojet Rocketdyne Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and Aerojet Rocketdyne

The main advantage of trading using opposite American Express and Aerojet Rocketdyne positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Aerojet Rocketdyne 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 Aerojet Rocketdyne will offset losses from the drop in Aerojet Rocketdyne's long position.
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The idea behind American Express and Aerojet Rocketdyne Holdings 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.
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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