Correlation Between GM and Amazon
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Amazon Inc, you can compare the effects of market volatilities on GM 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 GM with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Amazon.
Diversification Opportunities for GM and Amazon
Very poor diversification
The 3 months correlation between GM and Amazon is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and GM 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 General Motors 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 GM i.e., GM and Amazon go up and down completely randomly.
Pair Corralation between GM and Amazon
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.81 times more return on investment than Amazon. However, General Motors is 1.23 times less risky than Amazon. It trades about 0.25 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.19 per unit of risk. If you would invest 5,272 in General Motors on August 25, 2024 and sell it today you would earn a total of 581.00 from holding General Motors or generate 11.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Amazon Inc
Performance |
| Timeline |
| General Motors |
| Amazon Inc |
GM and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Amazon
The main advantage of trading using opposite GM and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance |