Correlation Between Amazon and Western Asset
Can any of the company-specific risk be diversified away by investing in both Amazon and Western Asset 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 Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Western Asset California, you can compare the effects of market volatilities on Amazon and Western Asset 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 Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Western Asset.
Diversification Opportunities for Amazon and Western Asset
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Amazon and Western is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Western Asset California in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset California 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset California has no effect on the direction of Amazon i.e., Amazon and Western Asset go up and down completely randomly.
Pair Corralation between Amazon and Western Asset
Given the investment horizon of 90 days Amazon Inc is expected to generate 6.95 times more return on investment than Western Asset. However, Amazon is 6.95 times more volatile than Western Asset California. It trades about 0.18 of its potential returns per unit of risk. Western Asset California is currently generating about 0.03 per unit of risk. If you would invest 18,700 in Amazon Inc on September 12, 2024 and sell it today you would earn a total of 3,804 from holding Amazon Inc or generate 20.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Western Asset California
Performance |
| Timeline |
| Amazon Inc |
| Western Asset California |
Amazon and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Western Asset
The main advantage of trading using opposite Amazon and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.The idea behind Amazon Inc and Western Asset California 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.| Western Asset vs. Lord Abbett Convertible | Western Asset vs. Allianzgi Convertible Income | Western Asset vs. Gabelli Convertible And | Western Asset vs. Putnam Convertible Incm Gwth |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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