Correlation Between Alaska Air and Amazon

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

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

Diversification Opportunities for Alaska Air and Amazon

0.45

Correlation Coefficient

Alaska Air  Amazon

Very weak diversification

The 3 months correlation between Alaska and Amazon is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Alaska Air 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 Alaska Air Group 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 Alaska Air i.e., Alaska Air and Amazon go up and down completely randomly.

Pair Corralation between Alaska Air and Amazon

Assuming the 90 days trading horizon Alaska Air Group is expected to generate 1.35 times more return on investment than Amazon. However, Alaska Air is 1.35 times more volatile than Amazon Inc. It trades about -0.16 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.56 per unit of risk. If you would invest  7,134  in Alaska Air Group on December 5, 2024 and sell it today you would lose (484.00) from holding Alaska Air Group or give up 6.78% of portfolio value over 90 days.

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

Alaska Air Group  vs.  Amazon Inc

Alaska Air Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Alaska Air and Amazon

The main advantage of trading using opposite Alaska Air and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air 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 Alaska Air Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.