Correlation Between Amazon and WEG SA
Can any of the company-specific risk be diversified away by investing in both Amazon and WEG SA 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 WEG SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and WEG SA, you can compare the effects of market volatilities on Amazon and WEG SA 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 WEG SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and WEG SA.
Diversification Opportunities for Amazon and WEG SA
Weak diversification
The 3 months correlation between Amazon and WEG is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and WEG SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA 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 WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA has no effect on the direction of Amazon i.e., Amazon and WEG SA go up and down completely randomly.
Pair Corralation between Amazon and WEG SA
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.17 times more return on investment than WEG SA. However, Amazon is 1.17 times more volatile than WEG SA. It trades about 0.52 of its potential returns per unit of risk. WEG SA is currently generating about 0.23 per unit of risk. If you would invest 5,848 in Amazon Inc on September 25, 2024 and sell it today you would earn a total of 1,132 from holding Amazon Inc or generate 19.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Amazon Inc vs. WEG SA
Performance |
| Timeline |
| Amazon Inc |
| WEG SA |
Amazon and WEG SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and WEG SA
The main advantage of trading using opposite Amazon and WEG SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, WEG SA 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 WEG SA will offset losses from the drop in WEG SA's long position.The idea behind Amazon Inc and WEG SA 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.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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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