Correlation Between American International and Amazon

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

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

Diversification Opportunities for American International and Amazon

0.74

Correlation Coefficient

American International  Amazon

Poor diversification

The 3 months correlation between American and Amazon is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American International Group and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and American International 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 American International Group 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 American International i.e., American International and Amazon go up and down completely randomly.

Pair Corralation between American International and Amazon

Assuming the 90 days trading horizon American International is expected to generate 1.27 times less return on investment than Amazon. In addition to that, American International is 1.3 times more volatile than Amazon Inc. It trades about 0.15 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.24 per unit of volatility. If you would invest  428,972  in Amazon Inc on September 27, 2024 and sell it today you would earn a total of  31,728  from holding Amazon Inc or generate 7.4% return on investment over 90 days.

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

American International Group  vs.  Amazon Inc

American International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, American International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Amazon Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American International and Amazon

The main advantage of trading using opposite American International and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American International 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 American International Group 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.