Correlation Between Amazon and LATAM Airlines
Can any of the company-specific risk be diversified away by investing in both Amazon and LATAM Airlines 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 LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and LATAM Airlines Group, you can compare the effects of market volatilities on Amazon and LATAM Airlines 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 LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and LATAM Airlines.
Diversification Opportunities for Amazon and LATAM Airlines
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Amazon and LATAM is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group 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 LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of Amazon i.e., Amazon and LATAM Airlines go up and down completely randomly.
Pair Corralation between Amazon and LATAM Airlines
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.64 times more return on investment than LATAM Airlines. However, Amazon is 1.64 times more volatile than LATAM Airlines Group. It trades about 0.17 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.13 per unit of risk. If you would invest 14,644 in Amazon Inc on September 14, 2024 and sell it today you would earn a total of 8,053 from holding Amazon Inc or generate 54.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 37.36% |
| Values | Daily Returns |
Amazon Inc vs. LATAM Airlines Group
Performance |
| Timeline |
| Amazon Inc |
| LATAM Airlines Group |
Amazon and LATAM Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and LATAM Airlines
The main advantage of trading using opposite Amazon and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, LATAM Airlines 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 LATAM Airlines will offset losses from the drop in LATAM Airlines' long position.The idea behind Amazon Inc and LATAM Airlines Group 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.| LATAM Airlines vs. Falabella | LATAM Airlines vs. Cencosud | LATAM Airlines vs. Enjoy SA | LATAM Airlines vs. Sociedad Qumica y |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
Other Complementary Tools
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities |