Correlation Between Amazon and Dolby Laboratories
Can any of the company-specific risk be diversified away by investing in both Amazon and Dolby Laboratories 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 Dolby Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Dolby Laboratories, you can compare the effects of market volatilities on Amazon and Dolby Laboratories 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 Dolby Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Dolby Laboratories.
Diversification Opportunities for Amazon and Dolby Laboratories
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Dolby is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Dolby Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolby Laboratories 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 Dolby Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolby Laboratories has no effect on the direction of Amazon i.e., Amazon and Dolby Laboratories go up and down completely randomly.
Pair Corralation between Amazon and Dolby Laboratories
Given the investment horizon of 90 days Amazon is expected to generate 1.52 times less return on investment than Dolby Laboratories. But when comparing it to its historical volatility, Amazon Inc is 1.66 times less risky than Dolby Laboratories. It trades about 0.16 of its potential returns per unit of risk. Dolby Laboratories is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 6,750 in Dolby Laboratories on September 3, 2024 and sell it today you would earn a total of 650.00 from holding Dolby Laboratories or generate 9.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Amazon Inc vs. Dolby Laboratories
Performance |
| Timeline |
| Amazon Inc |
| Dolby Laboratories |
Amazon and Dolby Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Dolby Laboratories
The main advantage of trading using opposite Amazon and Dolby Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Dolby Laboratories 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 Dolby Laboratories will offset losses from the drop in Dolby Laboratories' long position.The idea behind Amazon Inc and Dolby Laboratories 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.| Dolby Laboratories vs. MARKET VECTR RETAIL | Dolby Laboratories vs. DATANG INTL POW | Dolby Laboratories vs. Science Applications International | Dolby Laboratories vs. PICKN PAY STORES |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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