Correlation Between Amazon and Insurance Australia

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

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

Diversification Opportunities for Amazon and Insurance Australia

0.85

Correlation Coefficient

Amazon  Insurance Australia

Very poor diversification

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

Pair Corralation between Amazon and Insurance Australia

Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.04 times more return on investment than Insurance Australia. However, Amazon is 1.04 times more volatile than Insurance Australia Group. It trades about 0.11 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.1 per unit of risk. If you would invest  13,388  in Amazon Inc on September 28, 2024 and sell it today you would earn a total of  8,307  from holding Amazon Inc or generate 62.05% 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.  Insurance Australia Group

Amazon Inc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Insurance Australia

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Insurance Australia

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

The idea behind Amazon Inc and Insurance Australia 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.