Correlation Between Amazon and Magna International

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

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

Diversification Opportunities for Amazon and Magna International

0.84

Correlation Coefficient

Amazon  Magna International

Very poor diversification

The 3 months correlation between Amazon and Magna is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Amazon i.e., Amazon and Magna International go up and down completely randomly.

Pair Corralation between Amazon and Magna International

Assuming the 90 days trading horizon Amazon Inc is expected to under-perform the Magna International. In addition to that, Amazon is 1.09 times more volatile than Magna International. It trades about 0.0 of its total potential returns per unit of risk. Magna International is currently generating about 0.23 per unit of volatility. If you would invest  83,831  in Magna International on October 12, 2024 and sell it today you would earn a total of  5,069  from holding Magna International or generate 6.05% 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.  Magna International

Amazon Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.

Magna International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Magna International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Magna International

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

The idea behind Amazon Inc and Magna International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.