Correlation Between Amazon and Bank of America
Can any of the company-specific risk be diversified away by investing in both Amazon and Bank of America 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 Amazon and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Verizon Communications, you can compare the effects of market volatilities on Amazon and Bank of America 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 Amazon with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Bank of America.
Diversification Opportunities for Amazon and Bank of America
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Amazon and Bank is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Amazon 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 Amazon Inc are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Amazon i.e., Amazon and Bank of America go up and down completely randomly.
Pair Corralation between Amazon and Bank of America
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.32 times more return on investment than Bank of America. However, Amazon is 1.32 times more volatile than Verizon Communications. It trades about 0.12 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 7,835 in Amazon Inc on September 12, 2024 and sell it today you would earn a total of 13,830 from holding Amazon Inc or generate 176.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Verizon Communications
Performance |
| Timeline |
| Amazon Inc |
| Verizon Communications |
Amazon and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Bank of America
The main advantage of trading using opposite Amazon and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Amazon vs. Verizon Communications | Amazon vs. INTERSHOP Communications Aktiengesellschaft | Amazon vs. Singapore Telecommunications Limited | Amazon vs. MTI WIRELESS EDGE |
| Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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