Correlation Between Amazon and INDIKA ENERGY

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

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

Diversification Opportunities for Amazon and INDIKA ENERGY

-0.49

Correlation Coefficient

Amazon  INDIKA ENERGY

Very good diversification

The 3 months correlation between Amazon and INDIKA is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and INDIKA ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDIKA ENERGY 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 INDIKA ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDIKA ENERGY has no effect on the direction of Amazon i.e., Amazon and INDIKA ENERGY go up and down completely randomly.

Pair Corralation between Amazon and INDIKA ENERGY

Assuming the 90 days trading horizon Amazon Inc is expected to generate 2.0 times more return on investment than INDIKA ENERGY. However, Amazon is 2.0 times more volatile than INDIKA ENERGY. It trades about 0.18 of its potential returns per unit of risk. INDIKA ENERGY is currently generating about -0.05 per unit of risk. If you would invest  16,160  in Amazon Inc on September 2, 2024 and sell it today you would earn a total of  3,380  from holding Amazon Inc or generate 20.92% return on investment over 90 days.

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

Amazon Inc  vs.  INDIKA ENERGY

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 very fragile basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

INDIKA ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INDIKA ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, INDIKA ENERGY is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Amazon and INDIKA ENERGY

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

The idea behind Amazon Inc and INDIKA ENERGY 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.