Correlation Between Amazon and Richardson Electronics

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

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

Diversification Opportunities for Amazon and Richardson Electronics

0.89

Correlation Coefficient

Amazon  Richardson Electronics

Very poor diversification

The 3 months correlation between Amazon and Richardson is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of Amazon i.e., Amazon and Richardson Electronics go up and down completely randomly.

Pair Corralation between Amazon and Richardson Electronics

Assuming the 90 days trading horizon Amazon is expected to generate 1.21 times less return on investment than Richardson Electronics. But when comparing it to its historical volatility, Amazon Inc is 1.53 times less risky than Richardson Electronics. It trades about 0.19 of its potential returns per unit of risk. Richardson Electronics is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,045  in Richardson Electronics on September 3, 2024 and sell it today you would earn a total of  271.00  from holding Richardson Electronics or generate 25.93% return on investment over 90 days.

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

Amazon Inc  vs.  Richardson Electronics

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) 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.

Richardson Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Richardson Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Richardson Electronics

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

The idea behind Amazon Inc and Richardson Electronics 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.