Correlation Between Ford and Amazon
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Amazon Inc, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Amazon.
Diversification Opportunities for Ford and Amazon
Weak diversification
The 3 months correlation between Ford and Amazon is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Ford 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 Ford Motor 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 Ford i.e., Ford and Amazon go up and down completely randomly.
Pair Corralation between Ford and Amazon
Taking into account the 90-day investment horizon Ford is expected to generate 6.3 times less return on investment than Amazon. In addition to that, Ford is 1.13 times more volatile than Amazon Inc. It trades about 0.03 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.19 per unit of volatility. If you would invest 17,274 in Amazon Inc on August 25, 2024 and sell it today you would earn a total of 1,726 from holding Amazon Inc or generate 9.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Amazon Inc
Performance |
| Timeline |
| Ford Motor |
| Amazon Inc |
Ford and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Amazon
The main advantage of trading using opposite Ford and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Amazon vs. Neinor Homes SA | Amazon vs. STMicroelectronics NV | Amazon vs. CENTURIA OFFICE REIT | Amazon vs. Autohome ADR |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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