Correlation Between American Express and Naturgy BAN
Can any of the company-specific risk be diversified away by investing in both American Express and Naturgy BAN 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 Naturgy BAN 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 Naturgy BAN SA, you can compare the effects of market volatilities on American Express and Naturgy BAN 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 Naturgy BAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Naturgy BAN.
Diversification Opportunities for American Express and Naturgy BAN
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Naturgy is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and Naturgy BAN SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy BAN SA 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 Naturgy BAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy BAN SA has no effect on the direction of American Express i.e., American Express and Naturgy BAN go up and down completely randomly.
Pair Corralation between American Express and Naturgy BAN
Assuming the 90 days trading horizon American Express Co is expected to generate 0.35 times more return on investment than Naturgy BAN. However, American Express Co is 2.86 times less risky than Naturgy BAN. It trades about 0.23 of its potential returns per unit of risk. Naturgy BAN SA is currently generating about 0.06 per unit of risk. If you would invest 2,327,495 in American Express Co on November 2, 2024 and sell it today you would earn a total of 197,505 from holding American Express Co or generate 8.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express Co vs. Naturgy BAN SA
Performance |
| Timeline |
| American Express |
| Naturgy BAN SA |
American Express and Naturgy BAN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Naturgy BAN
The main advantage of trading using opposite American Express and Naturgy BAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Naturgy BAN 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 Naturgy BAN will offset losses from the drop in Naturgy BAN's long position.| American Express vs. International Business Machines | American Express vs. Transportadora de Gas | American Express vs. Agrometal SAI | American Express vs. Grimoldi SA |
| Naturgy BAN vs. Transportadora de Gas | Naturgy BAN vs. Distribuidora de Gas | Naturgy BAN vs. International Business Machines |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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