Correlation Between Amazon and BANNER

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

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

Diversification Opportunities for Amazon and BANNER

0.66

Correlation Coefficient

Amazon  BANNER

Poor diversification

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

Pair Corralation between Amazon and BANNER

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.65 times more return on investment than BANNER. However, Amazon Inc is 1.54 times less risky than BANNER. It trades about -0.18 of its potential returns per unit of risk. BANNER is currently generating about -0.15 per unit of risk. If you would invest  22,035  in Amazon Inc on October 15, 2024 and sell it today you would lose (760.00) from holding Amazon Inc or give up 3.45% of portfolio value over 90 days.

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

Amazon Inc  vs.  BANNER

Amazon Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

BANNER

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BANNER are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, BANNER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Amazon and BANNER

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

The idea behind Amazon Inc and BANNER 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..