Correlation Between Credit Acceptance and American Express

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

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

Diversification Opportunities for Credit Acceptance and American Express

-0.32

Correlation Coefficient

Credit Acceptance  American Express

Very good diversification

The 3 months correlation between Credit and American is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Credit Acceptance 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 Credit Acceptance are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and American Express go up and down completely randomly.

Pair Corralation between Credit Acceptance and American Express

Assuming the 90 days trading horizon Credit Acceptance is expected to generate 32.72 times less return on investment than American Express. But when comparing it to its historical volatility, Credit Acceptance is 2.68 times less risky than American Express. It trades about 0.01 of its potential returns per unit of risk. American Express is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  15,136  in American Express on April 24, 2025 and sell it today you would earn a total of  1,841  from holding American Express or generate 12.16% return on investment over 90 days.

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

Credit Acceptance  vs.  American Express

Credit Acceptance

Risk-Adjusted Performance

Very Weak

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

American Express

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Credit Acceptance and American Express

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

The idea behind Credit Acceptance and American Express 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.