Correlation Between Select Sector and Amazon
Can any of the company-specific risk be diversified away by investing in both Select Sector 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 Select Sector and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Amazon Inc, you can compare the effects of market volatilities on Select Sector 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 Select Sector with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Amazon.
Diversification Opportunities for Select Sector and Amazon
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Select and Amazon is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and Amazon go up and down completely randomly.
Pair Corralation between Select Sector and Amazon
Assuming the 90 days trading horizon The Select Sector is expected to generate 1.08 times more return on investment than Amazon. However, Select Sector is 1.08 times more volatile than Amazon Inc. It trades about 0.14 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.12 per unit of risk. If you would invest 117,925 in The Select Sector on August 27, 2024 and sell it today you would earn a total of 49,551 from holding The Select Sector or generate 42.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Select Sector vs. Amazon Inc
Performance |
| Timeline |
| Select Sector |
| Amazon Inc |
Select Sector and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Amazon
The main advantage of trading using opposite Select Sector and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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.| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Tax Managed Funds | Select Sector vs. Vanguard International Equity |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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