Correlation Between Amazon and N2ET34
Can any of the company-specific risk be diversified away by investing in both Amazon and N2ET34 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 N2ET34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and N2ET34, you can compare the effects of market volatilities on Amazon and N2ET34 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 N2ET34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and N2ET34.
Diversification Opportunities for Amazon and N2ET34
Poor diversification
The 3 months correlation between Amazon and N2ET34 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and N2ET34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on N2ET34 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 N2ET34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of N2ET34 has no effect on the direction of Amazon i.e., Amazon and N2ET34 go up and down completely randomly.
Pair Corralation between Amazon and N2ET34
Assuming the 90 days trading horizon Amazon is expected to generate 1.22 times less return on investment than N2ET34. But when comparing it to its historical volatility, Amazon Inc is 1.88 times less risky than N2ET34. It trades about 0.13 of its potential returns per unit of risk. N2ET34 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,258 in N2ET34 on September 19, 2024 and sell it today you would earn a total of 2,738 from holding N2ET34 or generate 217.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.8% |
| Values | Daily Returns |
Amazon Inc vs. N2ET34
Performance |
| Timeline |
| Amazon Inc |
| N2ET34 |
Amazon and N2ET34 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and N2ET34
The main advantage of trading using opposite Amazon and N2ET34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, N2ET34 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 N2ET34 will offset losses from the drop in N2ET34's long position.The idea behind Amazon Inc and N2ET34 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.| N2ET34 vs. Palantir Technologies | N2ET34 vs. British American Tobacco | N2ET34 vs. Marvell Technology | N2ET34 vs. Micron Technology |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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