Correlation Between American Express and SCHWAB

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

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

Diversification Opportunities for American Express and SCHWAB

-0.49

Correlation Coefficient

American Express  SCHWAB

Very good diversification

The 3 months correlation between American and SCHWAB is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Express and SCHWAB CHARLES P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCHWAB CHARLES P 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 SCHWAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCHWAB CHARLES P has no effect on the direction of American Express i.e., American Express and SCHWAB go up and down completely randomly.

Pair Corralation between American Express and SCHWAB

Considering the 90-day investment horizon American Express is expected to generate 5.06 times more return on investment than SCHWAB. However, American Express is 5.06 times more volatile than SCHWAB CHARLES P. It trades about 0.17 of its potential returns per unit of risk. SCHWAB CHARLES P is currently generating about -0.03 per unit of risk. If you would invest  25,642  in American Express on August 28, 2024 and sell it today you would earn a total of  4,879  from holding American Express or generate 19.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

American Express  vs.  SCHWAB CHARLES P

American Express

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

SCHWAB CHARLES P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SCHWAB CHARLES P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SCHWAB is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Express and SCHWAB

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

The idea behind American Express and SCHWAB CHARLES P 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.