Correlation Between American Express and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Express and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express Co and Dow Jones Industrial, you can compare the effects of market volatilities on American Express and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Dow Jones.
Diversification Opportunities for American Express and Dow Jones
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Dow is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Co are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Express i.e., American Express and Dow Jones go up and down completely randomly.
Pair Corralation between American Express and Dow Jones
Assuming the 90 days trading horizon American Express Co is expected to generate 1.34 times more return on investment than Dow Jones. However, American Express is 1.34 times more volatile than Dow Jones Industrial. It trades about -0.01 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.21 per unit of risk. If you would invest 30,102 in American Express Co on October 12, 2024 and sell it today you would lose (62.00) from holding American Express Co or give up 0.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.48% |
| Values | Daily Returns |
American Express Co vs. Dow Jones Industrial
Performance |
| Timeline |
American Express and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Express Co
Pair trading matchups for American Express
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Express and Dow Jones
The main advantage of trading using opposite American Express and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Express vs. Walmart | American Express vs. BYD Co | American Express vs. Volkswagen AG | American Express vs. Volkswagen AG Non Vtg |
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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 the Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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