Correlation Between Amazon and Indofood CBP

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

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

Diversification Opportunities for Amazon and Indofood CBP

0.66

Correlation Coefficient

Amazon  Indofood CBP

Poor diversification

The 3 months correlation between Amazon and Indofood is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Indofood CBP Sukses in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indofood CBP Sukses 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 Indofood CBP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indofood CBP Sukses has no effect on the direction of Amazon i.e., Amazon and Indofood CBP go up and down completely randomly.

Pair Corralation between Amazon and Indofood CBP

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.85 times more return on investment than Indofood CBP. However, Amazon Inc is 1.17 times less risky than Indofood CBP. It trades about 0.23 of its potential returns per unit of risk. Indofood CBP Sukses is currently generating about -0.21 per unit of risk. If you would invest  20,684  in Amazon Inc on September 12, 2024 and sell it today you would earn a total of  1,820  from holding Amazon Inc or generate 8.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.3%
Values	Daily Returns

Amazon Inc  vs.  Indofood CBP Sukses

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.

Indofood CBP Sukses

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indofood CBP Sukses are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Indofood CBP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Indofood CBP

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

The idea behind Amazon Inc and Indofood CBP Sukses 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.