Correlation Between First and Amazon
Can any of the company-specific risk be diversified away by investing in both First 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 First and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Class Metals and Amazon Inc, you can compare the effects of market volatilities on First 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 First with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and Amazon.
Diversification Opportunities for First and Amazon
Good diversification
The 3 months correlation between First and Amazon is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and First 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 First Class Metals 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 First i.e., First and Amazon go up and down completely randomly.
Pair Corralation between First and Amazon
Assuming the 90 days trading horizon First is expected to generate 1.81 times less return on investment than Amazon. But when comparing it to its historical volatility, First Class Metals is 2.21 times less risky than Amazon. It trades about 0.11 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 22,050 in Amazon Inc on October 29, 2024 and sell it today you would earn a total of 1,850 from holding Amazon Inc or generate 8.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Class Metals vs. Amazon Inc
Performance |
| Timeline |
| First Class Metals |
| Amazon Inc |
First and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First and Amazon
The main advantage of trading using opposite First and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First 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.| First vs. Omega Healthcare Investors | First vs. Universal Health Services | First vs. Jacquet Metal Service | First vs. Cardinal Health |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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