Correlation Between Amazon and NEXTDC

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

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

Diversification Opportunities for Amazon and NEXTDC

-0.66

Correlation Coefficient

Amazon  NEXTDC

Excellent diversification

The 3 months correlation between Amazon and NEXTDC is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD and Amazon 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 Amazon Inc are associated (or correlated) with NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Amazon i.e., Amazon and NEXTDC go up and down completely randomly.

Pair Corralation between Amazon and NEXTDC

Assuming the 90 days horizon Amazon Inc is expected to generate 0.72 times more return on investment than NEXTDC. However, Amazon Inc is 1.38 times less risky than NEXTDC. It trades about 0.26 of its potential returns per unit of risk. NEXTDC LTD is currently generating about -0.07 per unit of risk. If you would invest  16,722  in Amazon Inc on September 18, 2024 and sell it today you would earn a total of  4,948  from holding Amazon Inc or generate 29.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Amazon Inc  vs.  NEXTDC LTD

Amazon Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Amazon and NEXTDC

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

The idea behind Amazon Inc and NEXTDC LTD 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.