Correlation Between Amazon and Wilmington Large

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

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

Diversification Opportunities for Amazon and Wilmington Large

0.87

Correlation Coefficient

Amazon  Wilmington Large

Very poor diversification

The 3 months correlation between Amazon and Wilmington is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Wilmington Large Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Large Cap 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 Wilmington Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Large Cap has no effect on the direction of Amazon i.e., Amazon and Wilmington Large go up and down completely randomly.

Pair Corralation between Amazon and Wilmington Large

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.52 times more return on investment than Wilmington Large. However, Amazon is 2.52 times more volatile than Wilmington Large Cap Strategy. It trades about 0.18 of its potential returns per unit of risk. Wilmington Large Cap Strategy is currently generating about 0.2 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	98.44%
Values	Daily Returns

Amazon Inc  vs.  Wilmington Large Cap Strategy

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.

Wilmington Large Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmington Large Cap Strategy are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Wilmington Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and Wilmington Large

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

The idea behind Amazon Inc and Wilmington Large Cap Strategy 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.