Correlation Between Amazon and TomTom NV

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

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

Diversification Opportunities for Amazon and TomTom NV

0.7

Correlation Coefficient

Amazon  TomTom NV

Poor diversification

The 3 months correlation between Amazon and TomTom is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and TomTom NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TomTom NV 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 TomTom NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TomTom NV has no effect on the direction of Amazon i.e., Amazon and TomTom NV go up and down completely randomly.

Pair Corralation between Amazon and TomTom NV

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.58 times more return on investment than TomTom NV. However, Amazon Inc is 1.72 times less risky than TomTom NV. It trades about 0.45 of its potential returns per unit of risk. TomTom NV is currently generating about 0.06 per unit of risk. If you would invest  18,926  in Amazon Inc on September 22, 2024 and sell it today you would earn a total of  2,659  from holding Amazon Inc or generate 14.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Amazon Inc  vs.  TomTom NV

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) 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.

TomTom NV

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TomTom NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, TomTom NV 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 TomTom NV

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

The idea behind Amazon Inc and TomTom NV 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.