Correlation Between American Express and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both American Express and Verizon Communications 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 Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Verizon Communications, you can compare the effects of market volatilities on American Express and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Verizon Communications.
Diversification Opportunities for American Express and Verizon Communications
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between American and Verizon is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of American Express i.e., American Express and Verizon Communications go up and down completely randomly.
Pair Corralation between American Express and Verizon Communications
Considering the 90-day investment horizon American Express is expected to generate 1.23 times more return on investment than Verizon Communications. However, American Express is 1.23 times more volatile than Verizon Communications. It trades about 0.13 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.06 per unit of risk. If you would invest 23,593 in American Express on September 2, 2024 and sell it today you would earn a total of 6,875 from holding American Express or generate 29.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. Verizon Communications
Performance |
| Timeline |
| American Express |
| Verizon Communications |
American Express and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Verizon Communications
The main advantage of trading using opposite American Express and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| American Express vs. 360 Finance | American Express vs. Atlanticus Holdings | American Express vs. Qudian Inc | American Express vs. Enova International |
| Verizon Communications vs. T Mobile | Verizon Communications vs. Comcast Corp | Verizon Communications vs. Lumen Technologies | Verizon Communications vs. Charter Communications |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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