Correlation Between Amazon and Host Hotels

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

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

Diversification Opportunities for Amazon and Host Hotels

0.84

Correlation Coefficient

Amazon  Host Hotels

Very poor diversification

The 3 months correlation between Amazon and Host is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Host Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Host Hotels Resorts 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 Host Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Host Hotels Resorts has no effect on the direction of Amazon i.e., Amazon and Host Hotels go up and down completely randomly.

Pair Corralation between Amazon and Host Hotels

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.03 times more return on investment than Host Hotels. However, Amazon is 1.03 times more volatile than Host Hotels Resorts. It trades about 0.09 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about 0.03 per unit of risk. If you would invest  18,366  in Amazon Inc on September 12, 2024 and sell it today you would earn a total of  4,138  from holding Amazon Inc or generate 22.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.66%
Values	Daily Returns

Amazon Inc  vs.  Host Hotels Resorts

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.

Host Hotels Resorts

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Host Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Host Hotels

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

The idea behind Amazon Inc and Host Hotels Resorts 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.