Correlation Between Amazon and Twilio

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

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

Diversification Opportunities for Amazon and Twilio

0.91

Correlation Coefficient

Amazon  Twilio

Almost no diversification

The 3 months correlation between Amazon and Twilio is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Twilio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twilio Inc 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 Twilio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twilio Inc has no effect on the direction of Amazon i.e., Amazon and Twilio go up and down completely randomly.

Pair Corralation between Amazon and Twilio

Given the investment horizon of 90 days Amazon is expected to generate 2.14 times less return on investment than Twilio. But when comparing it to its historical volatility, Amazon Inc is 1.44 times less risky than Twilio. It trades about 0.27 of its potential returns per unit of risk. Twilio Inc is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  7,021  in Twilio Inc on September 17, 2024 and sell it today you would earn a total of  4,138  from holding Twilio Inc or generate 58.94% return on investment over 90 days.

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

Amazon Inc  vs.  Twilio Inc

Amazon Inc

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Twilio Inc

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Twilio Inc are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Twilio displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Twilio

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

The idea behind Amazon Inc and Twilio Inc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.