Correlation Between Amazon and Better World

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

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

Diversification Opportunities for Amazon and Better World

-0.35

Correlation Coefficient

Amazon  Better World

Very good diversification

The 3 months correlation between Amazon and Better is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Better World Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better World Green 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 Better World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better World Green has no effect on the direction of Amazon i.e., Amazon and Better World go up and down completely randomly.

Pair Corralation between Amazon and Better World

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.69 times more return on investment than Better World. However, Amazon Inc is 1.46 times less risky than Better World. It trades about 0.22 of its potential returns per unit of risk. Better World Green is currently generating about -0.03 per unit of risk. If you would invest  19,578  in Amazon Inc on September 5, 2024 and sell it today you would earn a total of  1,766  from holding Amazon Inc or generate 9.02% return on investment over 90 days.

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

Amazon Inc  vs.  Better World Green

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.

Better World Green

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Better World Green has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Better World is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Amazon and Better World

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

The idea behind Amazon Inc and Better World Green 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.