Correlation Between Amazon and Berkshire Hathaway
Can any of the company-specific risk be diversified away by investing in both Amazon and Berkshire Hathaway 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 Berkshire Hathaway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Berkshire Hathaway, you can compare the effects of market volatilities on Amazon and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Berkshire Hathaway.
Diversification Opportunities for Amazon and Berkshire Hathaway
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Berkshire is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Amazon i.e., Amazon and Berkshire Hathaway go up and down completely randomly.
Pair Corralation between Amazon and Berkshire Hathaway
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.93 times more return on investment than Berkshire Hathaway. However, Amazon is 1.93 times more volatile than Berkshire Hathaway. It trades about 0.16 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about -0.21 per unit of risk. If you would invest 431,904 in Amazon Inc on September 15, 2024 and sell it today you would earn a total of 26,382 from holding Amazon Inc or generate 6.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Berkshire Hathaway
Performance |
| Timeline |
| Amazon Inc |
| Berkshire Hathaway |
Amazon and Berkshire Hathaway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Berkshire Hathaway
The main advantage of trading using opposite Amazon and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.| Amazon vs. Grupo Sports World | Amazon vs. Deutsche Bank Aktiengesellschaft | Amazon vs. Capital One Financial | Amazon vs. FibraHotel |
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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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