Correlation Between Amazon and QUALCOMM Incorporated

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

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

Diversification Opportunities for Amazon and QUALCOMM Incorporated

-0.3

Correlation Coefficient

Amazon  QUALCOMM Incorporated

Very good diversification

The 3 months correlation between Amazon and QUALCOMM is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and QUALCOMM Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QUALCOMM Incorporated 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 QUALCOMM Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QUALCOMM Incorporated has no effect on the direction of Amazon i.e., Amazon and QUALCOMM Incorporated go up and down completely randomly.

Pair Corralation between Amazon and QUALCOMM Incorporated

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.88 times more return on investment than QUALCOMM Incorporated. However, Amazon Inc is 1.13 times less risky than QUALCOMM Incorporated. It trades about 0.1 of its potential returns per unit of risk. QUALCOMM Incorporated is currently generating about 0.07 per unit of risk. If you would invest  87,450  in Amazon Inc on September 14, 2024 and sell it today you would earn a total of  82,550  from holding Amazon Inc or generate 94.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.62%
Values	Daily Returns

Amazon Inc  vs.  QUALCOMM Incorporated

Amazon Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

QUALCOMM Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QUALCOMM Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, QUALCOMM Incorporated 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 QUALCOMM Incorporated

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

The idea behind Amazon Inc and QUALCOMM Incorporated 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.