Correlation Between Amazon and Vale SA

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

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

Diversification Opportunities for Amazon and Vale SA

-0.77

Correlation Coefficient

Amazon  Vale SA

Pay attention - limited upside

The 3 months correlation between Amazon and Vale is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Amazon i.e., Amazon and Vale SA go up and down completely randomly.

Pair Corralation between Amazon and Vale SA

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.97 times more return on investment than Vale SA. However, Amazon Inc is 1.03 times less risky than Vale SA. It trades about 0.19 of its potential returns per unit of risk. Vale SA is currently generating about -0.19 per unit of risk. If you would invest  370,525  in Amazon Inc on September 27, 2024 and sell it today you would earn a total of  90,175  from holding Amazon Inc or generate 24.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Amazon Inc  vs.  Vale SA

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.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Amazon and Vale SA

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

The idea behind Amazon Inc and Vale SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.