Correlation Between Amazon and GSK Plc
Can any of the company-specific risk be diversified away by investing in both Amazon and GSK Plc 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 GSK Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and GSK plc, you can compare the effects of market volatilities on Amazon and GSK Plc 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 GSK Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and GSK Plc.
Diversification Opportunities for Amazon and GSK Plc
Excellent diversification
The 3 months correlation between Amazon and GSK is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and GSK plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSK plc 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 GSK Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSK plc has no effect on the direction of Amazon i.e., Amazon and GSK Plc go up and down completely randomly.
Pair Corralation between Amazon and GSK Plc
Given the investment horizon of 90 days Amazon Inc is expected to generate 0.71 times more return on investment than GSK Plc. However, Amazon Inc is 1.4 times less risky than GSK Plc. It trades about 0.15 of its potential returns per unit of risk. GSK plc is currently generating about -0.11 per unit of risk. If you would invest 18,471 in Amazon Inc on August 24, 2024 and sell it today you would earn a total of 1,367 from holding Amazon Inc or generate 7.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 91.3% |
| Values | Daily Returns |
Amazon Inc vs. GSK plc
Performance |
| Timeline |
| Amazon Inc |
| GSK plc |
Amazon and GSK Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and GSK Plc
The main advantage of trading using opposite Amazon and GSK Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, GSK Plc 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 GSK Plc will offset losses from the drop in GSK Plc's long position.The idea behind Amazon Inc and GSK plc 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.| GSK Plc vs. Santen Pharmaceutical Co | GSK Plc vs. Ono Pharmaceutical Co | GSK Plc vs. Grifols SA ADR | GSK Plc vs. Pfizer Inc |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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