Correlation Between Amazon and CHINA STATE

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

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

Diversification Opportunities for Amazon and CHINA STATE

-0.32

Correlation Coefficient

Amazon  CHINA STATE

Very good diversification

The 3 months correlation between Amazon and CHINA is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and CHINA STATE STRU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA STATE STRU 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 CHINA STATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA STATE STRU has no effect on the direction of Amazon i.e., Amazon and CHINA STATE go up and down completely randomly.

Pair Corralation between Amazon and CHINA STATE

Assuming the 90 days trading horizon Amazon is expected to generate 1.84 times less return on investment than CHINA STATE. But when comparing it to its historical volatility, Amazon Inc is 1.77 times less risky than CHINA STATE. It trades about 0.11 of its potential returns per unit of risk. CHINA STATE STRU is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  58.00  in CHINA STATE STRU on September 23, 2024 and sell it today you would earn a total of  77.00  from holding CHINA STATE STRU or generate 132.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.64%
Values	Daily Returns

Amazon Inc  vs.  CHINA STATE STRU

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

CHINA STATE STRU

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA STATE STRU are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CHINA STATE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and CHINA STATE

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

The idea behind Amazon Inc and CHINA STATE STRU 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..