Correlation Between Amazon and Pacific Funds

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

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

Diversification Opportunities for Amazon and Pacific Funds

0.77

Correlation Coefficient

Amazon  Pacific Funds

Poor diversification

The 3 months correlation between Amazon and Pacific is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Pacific Funds Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Funds Ultra 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 Pacific Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Funds Ultra has no effect on the direction of Amazon i.e., Amazon and Pacific Funds go up and down completely randomly.

Pair Corralation between Amazon and Pacific Funds

Given the investment horizon of 90 days Amazon Inc is expected to generate 21.06 times more return on investment than Pacific Funds. However, Amazon is 21.06 times more volatile than Pacific Funds Ultra. It trades about 0.15 of its potential returns per unit of risk. Pacific Funds Ultra is currently generating about 0.18 per unit of risk. If you would invest  17,625  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,164  from holding Amazon Inc or generate 17.95% return on investment over 90 days.

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

Amazon Inc  vs.  Pacific Funds Ultra

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) 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.

Pacific Funds Ultra

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Funds Ultra are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Pacific Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Pacific Funds

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

The idea behind Amazon Inc and Pacific Funds Ultra 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.