Correlation Between Amazon and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Amazon and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Dow Jones Industrial, you can compare the effects of market volatilities on Amazon and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Dow Jones.
Diversification Opportunities for Amazon and Dow Jones
Very weak diversification
The 3 months correlation between Amazon and Dow is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Amazon i.e., Amazon and Dow Jones go up and down completely randomly.
Pair Corralation between Amazon and Dow Jones
Assuming the 90 days trading horizon Amazon Inc is expected to generate 6.47 times more return on investment than Dow Jones. However, Amazon is 6.47 times more volatile than Dow Jones Industrial. It trades about 0.12 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.01 per unit of risk. If you would invest 21,253 in Amazon Inc on September 12, 2024 and sell it today you would earn a total of 645.00 from holding Amazon Inc or generate 3.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 38.1% |
| Values | Daily Returns |
Amazon Inc vs. Dow Jones Industrial
Performance |
| Timeline |
Amazon and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Amazon Inc
Pair trading matchups for Amazon
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Amazon and Dow Jones
The main advantage of trading using opposite Amazon and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.The idea behind Amazon Inc and Dow Jones Industrial 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.| Dow Jones vs. Aeye Inc | Dow Jones vs. Gentex | Dow Jones vs. Marine Products | Dow Jones vs. CarsalesCom Ltd ADR |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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