Correlation Between American Express and CF Acquisition

Can any of the company-specific risk be diversified away by investing in both American Express and CF Acquisition 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 CF Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Express and CF Acquisition VII, you can compare the effects of market volatilities on American Express and CF Acquisition 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 CF Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and CF Acquisition.

Diversification Opportunities for American Express and CF Acquisition

0.84

Correlation Coefficient

American Express  CF Acquisition

Very poor diversification

The 3 months correlation between American and CFFS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding American Express and CF Acquisition VII in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Acquisition VII 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 CF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Acquisition VII has no effect on the direction of American Express i.e., American Express and CF Acquisition go up and down completely randomly.

Pair Corralation between American Express and CF Acquisition

Considering the 90-day investment horizon American Express is expected to generate 7.36 times more return on investment than CF Acquisition. However, American Express is 7.36 times more volatile than CF Acquisition VII. It trades about 0.15 of its potential returns per unit of risk. CF Acquisition VII is currently generating about 0.08 per unit of risk. If you would invest  15,746  in American Express on August 29, 2024 and sell it today you would earn a total of  14,679  from holding American Express or generate 93.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

American Express  vs.  CF Acquisition VII

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

CF Acquisition VII

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Acquisition VII are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, CF Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Express and CF Acquisition

The main advantage of trading using opposite American Express and CF Acquisition positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, CF Acquisition 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 CF Acquisition will offset losses from the drop in CF Acquisition's long position.

The idea behind American Express and CF Acquisition VII pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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.