Correlation Between American Express and Travelers Companies

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

Diversification Opportunities for American Express and Travelers Companies

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between American and Travelers is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Express and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of American Express i.e., American Express and Travelers Companies go up and down completely randomly.

Pair Corralation between American Express and Travelers Companies

Considering the 90-day investment horizon American Express is expected to generate 1.48 times more return on investment than Travelers Companies. However, American Express is 1.48 times more volatile than The Travelers Companies. It trades about 0.06 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.07 per unit of risk. If you would invest  10,002  in American Express on May 20, 2022 and sell it today you would earn a total of  6,422  from holding American Express or generate 64.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

American Express  vs.  The Travelers Companies

 Performance (%) 
       Timeline  
American Express 
American Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in September 2022.

American Price Channel

The Travelers Companies 
Travelers Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Travelers Price Channel

American Express and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and Travelers Companies

The main advantage of trading using opposite American Express and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.
The idea behind American Express and The Travelers Companies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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