Correlation Between Amazon and Federal Home

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

By analyzing existing cross correlation between Amazon Inc and Federal Home 530, you can compare the effects of market volatilities on Amazon and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Federal Home.

Diversification Opportunities for Amazon and Federal Home

0.82

Correlation Coefficient

Amazon  Federal Home

Very poor diversification

The 3 months correlation between Amazon and Federal is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Federal Home 530 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home 530 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home 530 has no effect on the direction of Amazon i.e., Amazon and Federal Home go up and down completely randomly.

Pair Corralation between Amazon and Federal Home

Given the investment horizon of 90 days Amazon is expected to generate 6.67 times less return on investment than Federal Home. But when comparing it to its historical volatility, Amazon Inc is 6.19 times less risky than Federal Home. It trades about 0.17 of its potential returns per unit of risk. Federal Home 530 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  595.00  in Federal Home 530 on September 5, 2024 and sell it today you would earn a total of  1,008  from holding Federal Home 530 or generate 169.41% return on investment over 90 days.

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

Amazon Inc  vs.  Federal Home 530

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.

Federal Home 530

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home 530 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Federal Home

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

The idea behind Amazon Inc and Federal Home 530 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 CEOs Directory module to screen CEOs from public companies around the world.