Correlation Between Target and Amazon

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

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

Diversification Opportunities for Target and Amazon

-0.36

Correlation Coefficient

Target  Amazon

Very good diversification

The 3 months correlation between Target and Amazon is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Target and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Target 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 Target 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 Target i.e., Target and Amazon go up and down completely randomly.

Pair Corralation between Target and Amazon

Assuming the 90 days trading horizon Target is expected to under-perform the Amazon. In addition to that, Target is 1.92 times more volatile than Amazon Inc. It trades about -0.01 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.23 per unit of volatility. If you would invest  5,348  in Amazon Inc on September 23, 2024 and sell it today you would earn a total of  1,522  from holding Amazon Inc or generate 28.46% return on investment over 90 days.

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

Target  vs.  Amazon Inc

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) 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 Target and Amazon

The main advantage of trading using opposite Target and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.