Correlation Between Amazon and F1RA34
Can any of the company-specific risk be diversified away by investing in both Amazon and F1RA34 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 F1RA34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and F1RA34, you can compare the effects of market volatilities on Amazon and F1RA34 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 F1RA34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and F1RA34.
Diversification Opportunities for Amazon and F1RA34
Very poor diversification
The 3 months correlation between Amazon and F1RA34 is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and F1RA34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on F1RA34 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 F1RA34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of F1RA34 has no effect on the direction of Amazon i.e., Amazon and F1RA34 go up and down completely randomly.
Pair Corralation between Amazon and F1RA34
Assuming the 90 days trading horizon Amazon is expected to generate 1.52 times less return on investment than F1RA34. But when comparing it to its historical volatility, Amazon Inc is 3.5 times less risky than F1RA34. It trades about 0.49 of its potential returns per unit of risk. F1RA34 is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 10,758 in F1RA34 on September 27, 2024 and sell it today you would earn a total of 2,515 from holding F1RA34 or generate 23.38% 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. F1RA34
Performance |
| Timeline |
| Amazon Inc |
| F1RA34 |
Amazon and F1RA34 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and F1RA34
The main advantage of trading using opposite Amazon and F1RA34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, F1RA34 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 F1RA34 will offset losses from the drop in F1RA34's long position.The idea behind Amazon Inc and F1RA34 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.| F1RA34 vs. Taiwan Semiconductor Manufacturing | F1RA34 vs. Apple Inc | F1RA34 vs. Alibaba Group Holding | F1RA34 vs. Microsoft |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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