Correlation Between Amazon and Knowles
Can any of the company-specific risk be diversified away by investing in both Amazon and Knowles 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 Knowles into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Knowles, you can compare the effects of market volatilities on Amazon and Knowles 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 Knowles. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Knowles.
Diversification Opportunities for Amazon and Knowles
Poor diversification
The 3 months correlation between Amazon and Knowles is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Knowles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowles 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 Knowles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowles has no effect on the direction of Amazon i.e., Amazon and Knowles go up and down completely randomly.
Pair Corralation between Amazon and Knowles
Given the investment horizon of 90 days Amazon is expected to generate 2.03 times less return on investment than Knowles. But when comparing it to its historical volatility, Amazon Inc is 1.28 times less risky than Knowles. It trades about 0.19 of its potential returns per unit of risk. Knowles is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,600 in Knowles on September 4, 2024 and sell it today you would earn a total of 260.00 from holding Knowles or generate 16.25% 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. Knowles
Performance |
| Timeline |
| Amazon Inc |
| Knowles |
Amazon and Knowles Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Knowles
The main advantage of trading using opposite Amazon and Knowles positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Knowles 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 Knowles will offset losses from the drop in Knowles' long position.The idea behind Amazon Inc and Knowles 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.| Knowles vs. Tyson Foods | Knowles vs. RYU Apparel | Knowles vs. COFCO Joycome Foods | Knowles vs. ULTRA CLEAN HLDGS |
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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