Correlation Between American Express and Papaya Growth
Can any of the company-specific risk be diversified away by investing in both American Express and Papaya Growth 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 Papaya Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Papaya Growth Opportunity, you can compare the effects of market volatilities on American Express and Papaya Growth 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 Papaya Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Papaya Growth.
Diversification Opportunities for American Express and Papaya Growth
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Papaya is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Papaya Growth Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papaya Growth Opportunity 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 Papaya Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papaya Growth Opportunity has no effect on the direction of American Express i.e., American Express and Papaya Growth go up and down completely randomly.
Pair Corralation between American Express and Papaya Growth
Considering the 90-day investment horizon American Express is expected to generate 15.04 times more return on investment than Papaya Growth. However, American Express is 15.04 times more volatile than Papaya Growth Opportunity. It trades about 0.17 of its potential returns per unit of risk. Papaya Growth Opportunity is currently generating about 0.11 per unit of risk. If you would invest 27,049 in American Express on August 29, 2024 and sell it today you would earn a total of 3,392 from holding American Express or generate 12.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.67% |
| Values | Daily Returns |
American Express vs. Papaya Growth Opportunity
Performance |
| Timeline |
| American Express |
| Papaya Growth Opportunity |
American Express and Papaya Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Papaya Growth
The main advantage of trading using opposite American Express and Papaya Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Papaya Growth 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 Papaya Growth will offset losses from the drop in Papaya Growth's long position.| American Express vs. Visa Class A | American Express vs. Mastercard | American Express vs. Discover Financial Services |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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