Correlation Between Amazon and TVI Pacific

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

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

Diversification Opportunities for Amazon and TVI Pacific

0.77

Correlation Coefficient

Amazon  TVI Pacific

Poor diversification

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

Pair Corralation between Amazon and TVI Pacific

Given the investment horizon of 90 days Amazon is expected to generate 8.87 times less return on investment than TVI Pacific. But when comparing it to its historical volatility, Amazon Inc is 9.16 times less risky than TVI Pacific. It trades about 0.22 of its potential returns per unit of risk. TVI Pacific is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1.00  in TVI Pacific on September 5, 2024 and sell it today you would earn a total of  0.80  from holding TVI Pacific or generate 80.0% 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.  TVI Pacific

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.

TVI Pacific

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TVI Pacific are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, TVI Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and TVI Pacific

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

The idea behind Amazon Inc and TVI Pacific 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.