Correlation Between Amazon and Koninklijke Philips

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

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

Diversification Opportunities for Amazon and Koninklijke Philips

-0.78

Correlation Coefficient

Amazon  Koninklijke Philips

Pay attention - limited upside

The 3 months correlation between Amazon and Koninklijke is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips 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 Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Amazon i.e., Amazon and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Amazon and Koninklijke Philips

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.67 times more return on investment than Koninklijke Philips. However, Amazon Inc is 1.48 times less risky than Koninklijke Philips. It trades about 0.28 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about -0.12 per unit of risk. If you would invest  16,926  in Amazon Inc on October 9, 2024 and sell it today you would earn a total of  4,949  from holding Amazon Inc or generate 29.24% 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.  Koninklijke Philips NV

Amazon Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 21 (%) 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.

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Amazon and Koninklijke Philips

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

The idea behind Amazon Inc and Koninklijke Philips NV 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.