Correlation Between Amazon and Dentsu

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

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

Diversification Opportunities for Amazon and Dentsu

-0.6

Correlation Coefficient

Amazon  Dentsu

Excellent diversification

The 3 months correlation between Amazon and Dentsu is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Dentsu Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dentsu Group 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 Dentsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dentsu Group has no effect on the direction of Amazon i.e., Amazon and Dentsu go up and down completely randomly.

Pair Corralation between Amazon and Dentsu

Assuming the 90 days horizon Amazon Inc is expected to generate 0.94 times more return on investment than Dentsu. However, Amazon Inc is 1.06 times less risky than Dentsu. It trades about 0.11 of its potential returns per unit of risk. Dentsu Group is currently generating about -0.01 per unit of risk. If you would invest  8,156  in Amazon Inc on September 24, 2024 and sell it today you would earn a total of  13,329  from holding Amazon Inc or generate 163.43% return on investment over 90 days.

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

Amazon Inc  vs.  Dentsu Group

Amazon Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 16 (%) 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.

Dentsu Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dentsu Group 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 Dentsu

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

The idea behind Amazon Inc and Dentsu Group 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 Valuation module to check real value of public entities based on technical and fundamental data.