Correlation Between Amazon and Agrometal SAI

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

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

Diversification Opportunities for Amazon and Agrometal SAI

0.66

Correlation Coefficient

Amazon  Agrometal SAI

Poor diversification

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

Pair Corralation between Amazon and Agrometal SAI

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.46 times more return on investment than Agrometal SAI. However, Amazon Inc is 2.17 times less risky than Agrometal SAI. It trades about 0.34 of its potential returns per unit of risk. Agrometal SAI is currently generating about -0.02 per unit of risk. If you would invest  169,000  in Amazon Inc on October 9, 2024 and sell it today you would earn a total of  18,000  from holding Amazon Inc or generate 10.65% return on investment over 90 days.

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

Amazon Inc  vs.  Agrometal SAI

Amazon Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.

Agrometal SAI

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Agrometal SAI are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Agrometal SAI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Agrometal SAI

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

The idea behind Amazon Inc and Agrometal SAI 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.