Correlation Between Amazon and Northland Power
Can any of the company-specific risk be diversified away by investing in both Amazon and Northland 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 Northland 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 Northland Power, you can compare the effects of market volatilities on Amazon and Northland 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 Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Northland Power.
Diversification Opportunities for Amazon and Northland Power
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Amazon and Northland is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Amazon i.e., Amazon and Northland Power go up and down completely randomly.
Pair Corralation between Amazon and Northland Power
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.15 times more return on investment than Northland Power. However, Amazon is 1.15 times more volatile than Northland Power. It trades about 0.01 of its potential returns per unit of risk. Northland Power is currently generating about -0.05 per unit of risk. If you would invest 18,375 in Amazon Inc on January 14, 2025 and sell it today you would lose (163.00) from holding Amazon Inc or give up 0.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.47% |
| Values | Daily Returns |
Amazon Inc vs. Northland Power
Performance |
| Timeline |
| Amazon Inc |
| Northland Power |
Amazon and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Northland Power
The main advantage of trading using opposite Amazon and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Northland 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 Northland Power will offset losses from the drop in Northland Power's long position.The idea behind Amazon Inc and Northland Power 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.| Northland Power vs. Waste Management | Northland Power vs. Casella Waste Systems | Northland Power vs. Montrose Environmental Grp | Northland Power vs. Clean Harbors |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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