Correlation Between Amazon and Monolithic Power
Can any of the company-specific risk be diversified away by investing in both Amazon and Monolithic 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 Monolithic 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 Monolithic Power Systems, you can compare the effects of market volatilities on Amazon and Monolithic 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 Monolithic Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Monolithic Power.
Diversification Opportunities for Amazon and Monolithic Power
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Monolithic is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Monolithic Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monolithic Power Systems 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 Monolithic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monolithic Power Systems has no effect on the direction of Amazon i.e., Amazon and Monolithic Power go up and down completely randomly.
Pair Corralation between Amazon and Monolithic Power
Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Monolithic Power. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.74 times less risky than Monolithic Power. The stock trades about -0.27 of its potential returns per unit of risk. The Monolithic Power Systems is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 60,079 in Monolithic Power Systems on November 28, 2024 and sell it today you would earn a total of 7,079 from holding Monolithic Power Systems or generate 11.78% 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. Monolithic Power Systems
Performance |
| Timeline |
| Amazon Inc |
| Monolithic Power Systems |
Amazon and Monolithic Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Monolithic Power
The main advantage of trading using opposite Amazon and Monolithic Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Monolithic 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 Monolithic Power will offset losses from the drop in Monolithic Power's long position.The idea behind Amazon Inc and Monolithic Power Systems 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.| Monolithic Power vs. Texas Instruments Incorporated | Monolithic Power vs. Microchip Technology | Monolithic Power vs. NXP Semiconductors NV | Monolithic Power vs. ON Semiconductor |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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