Correlation Between American Express and GM

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

Diversification Opportunities for American Express and GM

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between American and GM is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Express and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of American Express i.e., American Express and GM go up and down completely randomly.

Pair Corralation between American Express and GM

Considering the 90-day investment horizon American Express is expected to generate 1.11 times less return on investment than GM. But when comparing it to its historical volatility, American Express is 1.95 times less risky than GM. It trades about 0.39 of its potential returns per unit of risk. General Motors is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,476  in General Motors on May 21, 2022 and sell it today you would earn a total of  396.00  from holding General Motors or generate 11.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

American Express  vs.  General Motors

 Performance (%) 
       Timeline  
American Express 
American Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 3 (%) 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 current stock price disarray, may contribute to short-term losses for the insiders.

American Price Channel

General Motors 
GM Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in September 2022.

GM Price Channel

American Express and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and GM

The main advantage of trading using opposite American Express and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
The idea behind American Express and General Motors 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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