Correlation Between Amazon and Groupon

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

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

Diversification Opportunities for Amazon and Groupon

0.06

Correlation Coefficient

Amazon  Groupon

Significant diversification

The 3 months correlation between Amazon and Groupon is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Groupon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Groupon 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 Groupon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Groupon has no effect on the direction of Amazon i.e., Amazon and Groupon go up and down completely randomly.

Pair Corralation between Amazon and Groupon

Given the investment horizon of 90 days Amazon is expected to generate 1.26 times less return on investment than Groupon. But when comparing it to its historical volatility, Amazon Inc is 3.45 times less risky than Groupon. It trades about 0.18 of its potential returns per unit of risk. Groupon is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,095  in Groupon on September 12, 2024 and sell it today you would earn a total of  152.00  from holding Groupon or generate 13.88% return on investment over 90 days.

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

Amazon Inc  vs.  Groupon

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.

Groupon

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Groupon are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Groupon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Groupon

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

The idea behind Amazon Inc and Groupon 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.