Correlation Between Amazon and PENN NATL

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

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

Diversification Opportunities for Amazon and PENN NATL

0.85

Correlation Coefficient

Amazon  PENN NATL

Very poor diversification

The 3 months correlation between Amazon and PENN is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and PENN NATL GAMING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENN NATL GAMING 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 PENN NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENN NATL GAMING has no effect on the direction of Amazon i.e., Amazon and PENN NATL go up and down completely randomly.

Pair Corralation between Amazon and PENN NATL

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.7 times more return on investment than PENN NATL. However, Amazon Inc is 1.42 times less risky than PENN NATL. It trades about 0.19 of its potential returns per unit of risk. PENN NATL GAMING is currently generating about 0.12 per unit of risk. If you would invest  16,004  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,536  from holding Amazon Inc or generate 22.09% return on investment over 90 days.

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

Amazon Inc  vs.  PENN NATL GAMING

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) 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.

PENN NATL GAMING

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, PENN NATL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and PENN NATL

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

The idea behind Amazon Inc and PENN NATL GAMING 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..