Correlation Between Amazon and Alphabet

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

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

Diversification Opportunities for Amazon and Alphabet

0.81

Correlation Coefficient

Amazon  Alphabet

Very poor diversification

The 3 months correlation between Amazon and Alphabet is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Alphabet Inc Class A CEDEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Amazon i.e., Amazon and Alphabet go up and down completely randomly.

Pair Corralation between Amazon and Alphabet

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.84 times more return on investment than Alphabet. However, Amazon Inc is 1.19 times less risky than Alphabet. It trades about 0.0 of its potential returns per unit of risk. Alphabet Inc Class A CEDEAR is currently generating about -0.03 per unit of risk. If you would invest  188,000  in Amazon Inc on December 26, 2024 and sell it today you would lose (2,500) from holding Amazon Inc or give up 1.33% of portfolio value over 90 days.

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

Amazon Inc  vs.  Alphabet Inc Class A CEDEAR

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Amazon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alphabet Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class A CEDEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Alphabet is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Alphabet

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

The idea behind Amazon Inc and Alphabet Inc Class A CEDEAR 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.