Correlation Between Xiaomi and Amazon
Can any of the company-specific risk be diversified away by investing in both Xiaomi and Amazon 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 Xiaomi and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xiaomi and Amazon Inc, you can compare the effects of market volatilities on Xiaomi and Amazon 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 Xiaomi with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiaomi and Amazon.
Diversification Opportunities for Xiaomi and Amazon
Very poor diversification
The 3 months correlation between Xiaomi and Amazon is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Xiaomi 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 Xiaomi are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Xiaomi i.e., Xiaomi and Amazon go up and down completely randomly.
Pair Corralation between Xiaomi and Amazon
Assuming the 90 days horizon Xiaomi is expected to generate 1.43 times more return on investment than Amazon. However, Xiaomi is 1.43 times more volatile than Amazon Inc. It trades about 0.08 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.09 per unit of risk. If you would invest 136.00 in Xiaomi on August 24, 2024 and sell it today you would earn a total of 209.00 from holding Xiaomi or generate 153.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Xiaomi vs. Amazon Inc
Performance |
| Timeline |
| Xiaomi |
| Amazon Inc |
Xiaomi and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xiaomi and Amazon
The main advantage of trading using opposite Xiaomi and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiaomi position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.The idea behind Xiaomi and Amazon Inc 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.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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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