Correlation Between Amazon and Chevron Corp

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

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

Diversification Opportunities for Amazon and Chevron Corp

-0.17

Correlation Coefficient

Amazon  Chevron Corp

Good diversification

The 3 months correlation between Amazon and Chevron is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Chevron Corp CEDEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp CEDEAR 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp CEDEAR has no effect on the direction of Amazon i.e., Amazon and Chevron Corp go up and down completely randomly.

Pair Corralation between Amazon and Chevron Corp

Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.23 times more return on investment than Chevron Corp. However, Amazon is 1.23 times more volatile than Chevron Corp CEDEAR. It trades about 0.08 of its potential returns per unit of risk. Chevron Corp CEDEAR is currently generating about -0.04 per unit of risk. If you would invest  159,500  in Amazon Inc on September 15, 2024 and sell it today you would earn a total of  13,000  from holding Amazon Inc or generate 8.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Amazon Inc  vs.  Chevron Corp CEDEAR

Amazon Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chevron Corp CEDEAR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chevron Corp CEDEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Chevron Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Chevron Corp

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

The idea behind Amazon Inc and Chevron Corp CEDEAR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.