Correlation Between Amazon and Shanxi Xishan

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

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

Diversification Opportunities for Amazon and Shanxi Xishan

0.16

Correlation Coefficient

Amazon  Shanxi Xishan

Average diversification

The 3 months correlation between Amazon and Shanxi is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Shanxi Xishan Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Xishan Coal 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 Shanxi Xishan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Xishan Coal has no effect on the direction of Amazon i.e., Amazon and Shanxi Xishan go up and down completely randomly.

Pair Corralation between Amazon and Shanxi Xishan

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.7 times more return on investment than Shanxi Xishan. However, Amazon Inc is 1.43 times less risky than Shanxi Xishan. It trades about 0.17 of its potential returns per unit of risk. Shanxi Xishan Coal is currently generating about 0.07 per unit of risk. If you would invest  17,789  in Amazon Inc on September 5, 2024 and sell it today you would earn a total of  3,555  from holding Amazon Inc or generate 19.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.06%
Values	Daily Returns

Amazon Inc  vs.  Shanxi Xishan Coal

Amazon Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Shanxi Xishan Coal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanxi Xishan Coal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanxi Xishan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and Shanxi Xishan

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

The idea behind Amazon Inc and Shanxi Xishan Coal 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.