Correlation Between Amazon and Fundamental Large
Can any of the company-specific risk be diversified away by investing in both Amazon and Fundamental 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 Fundamental 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 Fundamental Large Cap, you can compare the effects of market volatilities on Amazon and Fundamental 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 Fundamental Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Fundamental Large.
Diversification Opportunities for Amazon and Fundamental Large
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Amazon and Fundamental is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental 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 Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Amazon i.e., Amazon and Fundamental Large go up and down completely randomly.
Pair Corralation between Amazon and Fundamental Large
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.89 times more return on investment than Fundamental Large. However, Amazon is 1.89 times more volatile than Fundamental Large Cap. It trades about 0.09 of its potential returns per unit of risk. Fundamental Large Cap is currently generating about 0.08 per unit of risk. If you would invest 14,589 in Amazon Inc on September 4, 2024 and sell it today you would earn a total of 6,482 from holding Amazon Inc or generate 44.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Fundamental Large Cap
Performance |
| Timeline |
| Amazon Inc |
| Fundamental Large Cap |
Amazon and Fundamental Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Fundamental Large
The main advantage of trading using opposite Amazon and Fundamental Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Fundamental 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 Fundamental Large will offset losses from the drop in Fundamental Large's long position.The idea behind Amazon Inc and Fundamental 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.| Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Multimanager Lifestyle Moderate | Fundamental Large vs. Multimanager Lifestyle Balanced |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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