Correlation Between Etsy and Amazon
Can any of the company-specific risk be diversified away by investing in both Etsy and Amazon 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 Etsy and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Etsy Inc and Amazon Inc, you can compare the effects of market volatilities on Etsy and Amazon 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 Etsy with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Etsy and Amazon.
Diversification Opportunities for Etsy and Amazon
Poor diversification
The 3 months correlation between Etsy and Amazon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Etsy 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 Etsy Inc are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Etsy i.e., Etsy and Amazon go up and down completely randomly.
Pair Corralation between Etsy and Amazon
Assuming the 90 days trading horizon Etsy is expected to generate 1.44 times less return on investment than Amazon. In addition to that, Etsy is 2.11 times more volatile than Amazon Inc. It trades about 0.17 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.52 per unit of volatility. If you would invest 5,848 in Amazon Inc on September 26, 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Etsy Inc vs. Amazon Inc
Performance |
| Timeline |
| Etsy Inc |
| Amazon Inc |
Etsy and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Etsy and Amazon
The main advantage of trading using opposite Etsy and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.The idea behind Etsy Inc and Amazon Inc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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