Correlation Between Amazon and Africa Oil

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

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

Diversification Opportunities for Amazon and Africa Oil

0.6

Correlation Coefficient

Amazon  Africa Oil

Poor diversification

The 3 months correlation between Amazon and Africa is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Africa Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Oil Corp 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 Africa Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Oil Corp has no effect on the direction of Amazon i.e., Amazon and Africa Oil go up and down completely randomly.

Pair Corralation between Amazon and Africa Oil

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.89 times more return on investment than Africa Oil. However, Amazon Inc is 1.12 times less risky than Africa Oil. It trades about 0.2 of its potential returns per unit of risk. Africa Oil Corp is currently generating about 0.04 per unit of risk. If you would invest  18,649  in Amazon Inc on September 13, 2024 and sell it today you would earn a total of  4,377  from holding Amazon Inc or generate 23.47% return on investment over 90 days.

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

Amazon Inc  vs.  Africa Oil Corp

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 unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Africa Oil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Africa Oil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Amazon and Africa Oil

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

The idea behind Amazon Inc and Africa Oil Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.