Correlation Between Amazon and Xtra Energy
Can any of the company-specific risk be diversified away by investing in both Amazon and Xtra Energy 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 Xtra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Xtra Energy Corp, you can compare the effects of market volatilities on Amazon and Xtra Energy 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 Xtra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Xtra Energy.
Diversification Opportunities for Amazon and Xtra Energy
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Amazon and Xtra is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Xtra Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtra Energy Corp 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 Xtra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtra Energy Corp has no effect on the direction of Amazon i.e., Amazon and Xtra Energy go up and down completely randomly.
Pair Corralation between Amazon and Xtra Energy
Given the investment horizon of 90 days Amazon is expected to generate 9.09 times less return on investment than Xtra Energy. But when comparing it to its historical volatility, Amazon Inc is 3.38 times less risky than Xtra Energy. It trades about 0.13 of its potential returns per unit of risk. Xtra Energy Corp is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 11.00 in Xtra Energy Corp on September 2, 2024 and sell it today you would earn a total of 6.00 from holding Xtra Energy Corp or generate 54.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Xtra Energy Corp
Performance |
| Timeline |
| Amazon Inc |
| Xtra Energy Corp |
Amazon and Xtra Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Xtra Energy
The main advantage of trading using opposite Amazon and Xtra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Xtra Energy 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 Xtra Energy will offset losses from the drop in Xtra Energy's long position.The idea behind Amazon Inc and Xtra Energy Corp 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.| Xtra Energy vs. XCana Petroleum | Xtra Energy vs. New Generation Consumer | Xtra Energy vs. Arsenal Digital Holdings | Xtra Energy vs. UHF Logistics Group |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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