Correlation Between Bread Financial and Amazon

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

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

Diversification Opportunities for Bread Financial and Amazon

0.96

Correlation Coefficient

Bread Financial  Amazon

Almost no diversification

The 3 months correlation between Bread and Amazon is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Bread Financial 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 Bread Financial Holdings 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 Bread Financial i.e., Bread Financial and Amazon go up and down completely randomly.

Pair Corralation between Bread Financial and Amazon

Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 1.9 times more return on investment than Amazon. However, Bread Financial is 1.9 times more volatile than Amazon Inc. It trades about 0.17 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.27 per unit of risk. If you would invest  7,101  in Bread Financial Holdings on September 17, 2024 and sell it today you would earn a total of  2,781  from holding Bread Financial Holdings or generate 39.16% return on investment over 90 days.

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

Bread Financial Holdings  vs.  Amazon Inc

Bread Financial Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 21 (%) 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 Bread Financial and Amazon

The main advantage of trading using opposite Bread Financial and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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 Bread Financial Holdings 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.