Correlation Between Focus Home and Amazon

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

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

Diversification Opportunities for Focus Home and Amazon

0.07

Correlation Coefficient

Focus Home  Amazon

Significant diversification

The 3 months correlation between Focus and Amazon is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Focus Home Interactive and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Focus Home 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 Focus Home Interactive 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 Focus Home i.e., Focus Home and Amazon go up and down completely randomly.

Pair Corralation between Focus Home and Amazon

Assuming the 90 days horizon Focus Home Interactive is expected to generate 3.47 times more return on investment than Amazon. However, Focus Home is 3.47 times more volatile than Amazon Inc. It trades about 0.11 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.09 per unit of risk. If you would invest  1,880  in Focus Home Interactive on October 22, 2024 and sell it today you would earn a total of  125.00  from holding Focus Home Interactive or generate 6.65% return on investment over 90 days.

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

Focus Home Interactive  vs.  Amazon Inc

Focus Home Interactive

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Focus Home Interactive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Focus Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Amazon Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Home and Amazon

The main advantage of trading using opposite Focus Home and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Focus Home 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 Focus Home Interactive 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.