Correlation Between Amazon and Earth Science

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

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

Diversification Opportunities for Amazon and Earth Science

-0.67

Correlation Coefficient

Amazon  Earth Science

Excellent diversification

The 3 months correlation between Amazon and Earth is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Earth Science Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earth Science Tech 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 Earth Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earth Science Tech has no effect on the direction of Amazon i.e., Amazon and Earth Science go up and down completely randomly.

Pair Corralation between Amazon and Earth Science

Given the investment horizon of 90 days Amazon is expected to generate 1.98 times less return on investment than Earth Science. But when comparing it to its historical volatility, Amazon Inc is 8.97 times less risky than Earth Science. It trades about 0.23 of its potential returns per unit of risk. Earth Science Tech is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Earth Science Tech on September 12, 2024 and sell it today you would lose (1.00) from holding Earth Science Tech or give up 7.69% of portfolio value over 90 days.

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

Amazon Inc  vs.  Earth Science Tech

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

Earth Science Tech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Earth Science Tech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Earth Science may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and Earth Science

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

The idea behind Amazon Inc and Earth Science Tech 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.