Correlation Between American Express and Northern Lights
Can any of the company-specific risk be diversified away by investing in both American Express and Northern Lights 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 Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Northern Lights, you can compare the effects of market volatilities on American Express and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Northern Lights.
Diversification Opportunities for American Express and Northern Lights
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between American and Northern is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of American Express i.e., American Express and Northern Lights go up and down completely randomly.
Pair Corralation between American Express and Northern Lights
Considering the 90-day investment horizon American Express is expected to under-perform the Northern Lights. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 1.06 times less risky than Northern Lights. The stock trades about -0.31 of its potential returns per unit of risk. The Northern Lights is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 3,312 in Northern Lights on November 27, 2024 and sell it today you would lose (31.00) from holding Northern Lights or give up 0.94% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. Northern Lights
Performance |
| Timeline |
| American Express |
| Northern Lights |
American Express and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Northern Lights
The main advantage of trading using opposite American Express and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| American Express vs. Visa Class A | American Express vs. PayPal Holdings | American Express vs. Capital One Financial | American Express vs. Upstart Holdings |
| Northern Lights vs. Davis Select International | Northern Lights vs. Principal Value ETF | Northern Lights vs. WisdomTree Emerging Markets | Northern Lights vs. Ballast SmallMid Cap |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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