Correlation Between Amgen and AUTO TRADER

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

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

Diversification Opportunities for Amgen and AUTO TRADER

0.49

Correlation Coefficient

Amgen  AUTO TRADER

Very weak diversification

The 3 months correlation between Amgen and AUTO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and AUTO TRADER ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTO TRADER ADR and Amgen 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 Amgen Inc are associated (or correlated) with AUTO TRADER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTO TRADER ADR has no effect on the direction of Amgen i.e., Amgen and AUTO TRADER go up and down completely randomly.

Pair Corralation between Amgen and AUTO TRADER

Assuming the 90 days trading horizon Amgen Inc is expected to under-perform the AUTO TRADER. In addition to that, Amgen is 1.48 times more volatile than AUTO TRADER ADR. It trades about -0.1 of its total potential returns per unit of risk. AUTO TRADER ADR is currently generating about -0.08 per unit of volatility. If you would invest  253.00  in AUTO TRADER ADR on October 10, 2024 and sell it today you would lose (19.00) from holding AUTO TRADER ADR or give up 7.51% of portfolio value over 90 days.

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

Amgen Inc  vs.  AUTO TRADER ADR

Amgen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amgen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Amgen and AUTO TRADER

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

The idea behind Amgen Inc and AUTO TRADER ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.