Correlation Between Amazon and JPMorgan Momentum

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

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

Diversification Opportunities for Amazon and JPMorgan Momentum

0.82

Correlation Coefficient

Amazon  JPMorgan Momentum

Very poor diversification

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

Pair Corralation between Amazon and JPMorgan Momentum

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.21 times more return on investment than JPMorgan Momentum. However, Amazon is 2.21 times more volatile than JPMorgan Momentum Factor. It trades about 0.18 of its potential returns per unit of risk. JPMorgan Momentum Factor is currently generating about 0.24 per unit of risk. If you would invest  17,333  in Amazon Inc on September 4, 2024 and sell it today you would earn a total of  3,738  from holding Amazon Inc or generate 21.57% 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.  JPMorgan Momentum Factor

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.

JPMorgan Momentum Factor

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Momentum Factor are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, JPMorgan Momentum displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and JPMorgan Momentum

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

The idea behind Amazon Inc and JPMorgan Momentum Factor 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.