Correlation Between Amazon and Baltic Panamax

Can any of the company-specific risk be diversified away by investing in both Amazon and Baltic Panamax 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 Amazon and Baltic Panamax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Amazon Inc and Baltic Panamax, you can compare the effects of market volatilities on Amazon and Baltic Panamax 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 Amazon with a short position of Baltic Panamax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Baltic Panamax.

Diversification Opportunities for Amazon and Baltic Panamax

-0.79

Correlation Coefficient

Amazon  Baltic Panamax

Pay attention - limited upside

The 3 months correlation between Amazon and Baltic is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax and Amazon 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 Amazon Inc are associated (or correlated) with Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Amazon i.e., Amazon and Baltic Panamax go up and down completely randomly.

Pair Corralation between Amazon and Baltic Panamax

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.57 times more return on investment than Baltic Panamax. However, Amazon Inc is 1.75 times less risky than Baltic Panamax. It trades about 0.42 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.23 per unit of risk. If you would invest  20,300  in Amazon Inc on September 18, 2024 and sell it today you would earn a total of  2,750  from holding Amazon Inc or generate 13.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  Baltic Panamax

Pair Trading with Amazon and Baltic Panamax

The main advantage of trading using opposite Amazon and Baltic Panamax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Baltic Panamax 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 Baltic Panamax will offset losses from the drop in Baltic Panamax's long position.

The idea behind Amazon Inc and Baltic Panamax 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.