Correlation Between Amazon and Largecap Value
Can any of the company-specific risk be diversified away by investing in both Amazon and Largecap Value 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 Largecap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Largecap Value Fund, you can compare the effects of market volatilities on Amazon and Largecap Value 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 Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Largecap Value.
Diversification Opportunities for Amazon and Largecap Value
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Amazon and Largecap is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value 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 Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Amazon i.e., Amazon and Largecap Value go up and down completely randomly.
Pair Corralation between Amazon and Largecap Value
Given the investment horizon of 90 days Amazon Inc is expected to generate 2.44 times more return on investment than Largecap Value. However, Amazon is 2.44 times more volatile than Largecap Value Fund. It trades about 0.16 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.36 per unit of risk. If you would invest 19,578 in Amazon Inc on September 3, 2024 and sell it today you would earn a total of 1,211 from holding Amazon Inc or generate 6.19% 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. Largecap Value Fund
Performance |
| Timeline |
| Amazon Inc |
| Largecap Value |
Amazon and Largecap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Largecap Value
The main advantage of trading using opposite Amazon and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Largecap Value 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 Largecap Value will offset losses from the drop in Largecap Value's long position.The idea behind Amazon Inc and Largecap Value Fund 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.| Largecap Value vs. Dreyfus Technology Growth | Largecap Value vs. Global Technology Portfolio | Largecap Value vs. Fidelity Advisor Technology | Largecap Value vs. Biotechnology Ultrasector Profund |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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