Correlation Between Amazon and Xiaomi
Can any of the company-specific risk be diversified away by investing in both Amazon and Xiaomi 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 Xiaomi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Xiaomi, you can compare the effects of market volatilities on Amazon and Xiaomi 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 Xiaomi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Xiaomi.
Diversification Opportunities for Amazon and Xiaomi
Average diversification
The 3 months correlation between Amazon and Xiaomi is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi 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 Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Amazon i.e., Amazon and Xiaomi go up and down completely randomly.
Pair Corralation between Amazon and Xiaomi
Assuming the 90 days trading horizon Amazon Inc is expected to under-perform the Xiaomi. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 2.45 times less risky than Xiaomi. The stock trades about -0.34 of its potential returns per unit of risk. The Xiaomi is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest 10,851 in Xiaomi on December 1, 2024 and sell it today you would earn a total of 4,348 from holding Xiaomi or generate 40.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Xiaomi
Performance |
| Timeline |
| Amazon Inc |
| Xiaomi |
Amazon and Xiaomi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Xiaomi
The main advantage of trading using opposite Amazon and Xiaomi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Xiaomi 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 Xiaomi will offset losses from the drop in Xiaomi's long position.| Amazon vs. Cognizant Technology Solutions | Amazon vs. Grupo Industrial Saltillo | Amazon vs. Delta Air Lines | Amazon vs. Hoteles City Express |
| Xiaomi vs. Applied Materials | Xiaomi vs. GMxico Transportes SAB | Xiaomi vs. Capital One Financial | Xiaomi vs. New Oriental Education |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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