Correlation Between Amazon and Altria
Can any of the company-specific risk be diversified away by investing in both Amazon and Altria 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 Altria into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Altria Group, you can compare the effects of market volatilities on Amazon and Altria 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 Altria. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Altria.
Diversification Opportunities for Amazon and Altria
Very poor diversification
The 3 months correlation between Amazon and Altria is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Altria Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria Group 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group has no effect on the direction of Amazon i.e., Amazon and Altria go up and down completely randomly.
Pair Corralation between Amazon and Altria
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.23 times more return on investment than Altria. However, Amazon is 1.23 times more volatile than Altria Group. It trades about 0.11 of its potential returns per unit of risk. Altria Group is currently generating about 0.06 per unit of risk. If you would invest 2,540 in Amazon Inc on October 13, 2024 and sell it today you would earn a total of 4,123 from holding Amazon Inc or generate 162.32% 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. Altria Group
Performance |
| Timeline |
| Amazon Inc |
| Altria Group |
Amazon and Altria Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Altria
The main advantage of trading using opposite Amazon and Altria positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Altria 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 Altria will offset losses from the drop in Altria's long position.| Amazon vs. Apartment Investment and | Amazon vs. ICICI Bank Limited | Amazon vs. HDFC Bank Limited | Amazon vs. Prudential Financial |
| Altria vs. Energisa SA | Altria vs. BTG Pactual Logstica | Altria vs. Plano Plano Desenvolvimento | Altria vs. Ares Management |
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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