Correlation Between Sea and Amazon

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

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

Diversification Opportunities for Sea and Amazon

0.85

Correlation Coefficient

Sea  Amazon

Very poor diversification

The 3 months correlation between Sea and Amazon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sea Limited and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Sea 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 Sea Limited are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Sea i.e., Sea and Amazon go up and down completely randomly.

Pair Corralation between Sea and Amazon

Assuming the 90 days trading horizon Sea Limited is expected to generate 1.36 times more return on investment than Amazon. However, Sea is 1.36 times more volatile than Amazon Inc. It trades about 0.29 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.25 per unit of risk. If you would invest  1,782  in Sea Limited on September 12, 2024 and sell it today you would earn a total of  948.00  from holding Sea Limited or generate 53.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Sea Limited  vs.  Amazon Inc

Sea Limited

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sea sustained solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sea and Amazon

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

The idea behind Sea Limited and Amazon 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.

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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.