Correlation Between BNY Mellon and American Overseas

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

By analyzing existing cross correlation between BNY Mellon High and American Overseas Group, you can compare the effects of market volatilities on BNY Mellon and American Overseas 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 BNY Mellon with a short position of American Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of BNY Mellon and American Overseas.

Diversification Opportunities for BNY Mellon and American Overseas

-0.02

Correlation Coefficient

BNY Mellon  American Overseas

Good diversification

The 3 months correlation between BNY and American is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding BNY Mellon High and American Overseas Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Overseas and BNY Mellon 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 BNY Mellon High are associated (or correlated) with American Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Overseas has no effect on the direction of BNY Mellon i.e., BNY Mellon and American Overseas go up and down completely randomly.

Pair Corralation between BNY Mellon and American Overseas

Considering the 90-day investment horizon BNY Mellon is expected to generate 3.45 times less return on investment than American Overseas. But when comparing it to its historical volatility, BNY Mellon High is 1.0 times less risky than American Overseas. It trades about 0.06 of its potential returns per unit of risk. American Overseas Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  34,000  in American Overseas Group on February 5, 2024 and sell it today you would earn a total of  1,000.00  from holding American Overseas Group or generate 2.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

BNY Mellon High  vs.  American Overseas Group

BNY Mellon High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BNY Mellon High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, BNY Mellon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

American Overseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Overseas Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, American Overseas is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BNY Mellon and American Overseas

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

The idea behind BNY Mellon High and American Overseas Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.