Correlation Between Amazon and SPDR SP

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

By analyzing existing cross correlation between Amazon Inc and SPDR SP 500, you can compare the effects of market volatilities on Amazon and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and SPDR SP.

Diversification Opportunities for Amazon and SPDR SP

0.84

Correlation Coefficient

Amazon  SPDR SP

Very poor diversification

The 3 months correlation between Amazon and SPDR is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of Amazon i.e., Amazon and SPDR SP go up and down completely randomly.

Pair Corralation between Amazon and SPDR SP

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.22 times more return on investment than SPDR SP. However, Amazon is 2.22 times more volatile than SPDR SP 500. It trades about 0.18 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.28 per unit of risk. If you would invest  18,700  in Amazon Inc on September 12, 2024 and sell it today you would earn a total of  3,804  from holding Amazon Inc or generate 20.34% return on investment over 90 days.

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

Amazon Inc  vs.  SPDR SP 500

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.

SPDR SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SPDR SP sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and SPDR SP

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

The idea behind Amazon Inc and SPDR SP 500 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.