Correlation Between Amazon and Electric Power
Can any of the company-specific risk be diversified away by investing in both Amazon and Electric Power 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 Electric Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Electric Power Development, you can compare the effects of market volatilities on Amazon and Electric Power 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 Electric Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Electric Power.
Diversification Opportunities for Amazon and Electric Power
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Electric is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Electric Power Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electric Power Devel 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 Electric Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electric Power Devel has no effect on the direction of Amazon i.e., Amazon and Electric Power go up and down completely randomly.
Pair Corralation between Amazon and Electric Power
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.41 times more return on investment than Electric Power. However, Amazon is 1.41 times more volatile than Electric Power Development. It trades about 0.14 of its potential returns per unit of risk. Electric Power Development is currently generating about 0.16 per unit of risk. If you would invest 19,273 in Amazon Inc on August 31, 2024 and sell it today you would earn a total of 1,301 from holding Amazon Inc or generate 6.75% 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. Electric Power Development
Performance |
| Timeline |
| Amazon Inc |
| Electric Power Devel |
Amazon and Electric Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Electric Power
The main advantage of trading using opposite Amazon and Electric Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Electric Power 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 Electric Power will offset losses from the drop in Electric Power's long position.The idea behind Amazon Inc and Electric Power Development 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.| Electric Power vs. Orsted AS | Electric Power vs. Innergex Renewable Energy | Electric Power vs. Clearway Energy | Electric Power vs. Fusion Fuel Green |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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