Correlation Between Amazon and Democratic Large
Can any of the company-specific risk be diversified away by investing in both Amazon and Democratic Large 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 Democratic Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Democratic Large Cap, you can compare the effects of market volatilities on Amazon and Democratic Large 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 Democratic Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Democratic Large.
Diversification Opportunities for Amazon and Democratic Large
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Democratic is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Democratic Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Democratic Large Cap 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 Democratic Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Democratic Large Cap has no effect on the direction of Amazon i.e., Amazon and Democratic Large go up and down completely randomly.
Pair Corralation between Amazon and Democratic Large
Given the investment horizon of 90 days Amazon Inc is expected to generate 2.17 times more return on investment than Democratic Large. However, Amazon is 2.17 times more volatile than Democratic Large Cap. It trades about 0.08 of its potential returns per unit of risk. Democratic Large Cap is currently generating about 0.11 per unit of risk. If you would invest 18,430 in Amazon Inc on September 5, 2024 and sell it today you would earn a total of 3,386 from holding Amazon Inc or generate 18.37% 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. Democratic Large Cap
Performance |
| Timeline |
| Amazon Inc |
| Democratic Large Cap |
Amazon and Democratic Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Democratic Large
The main advantage of trading using opposite Amazon and Democratic Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Democratic Large 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 Democratic Large will offset losses from the drop in Democratic Large's long position.The idea behind Amazon Inc and Democratic Large Cap 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.| Democratic Large vs. Vanguard Total Stock | Democratic Large vs. SPDR SP 500 | Democratic Large vs. iShares Core SP | Democratic Large vs. Vanguard Dividend Appreciation |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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