Correlation Between Amazon and Schlumberger

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

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

Diversification Opportunities for Amazon and Schlumberger

0.22

Correlation Coefficient

Amazon  Schlumberger

Modest diversification

The 3 months correlation between Amazon and Schlumberger is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Amazon i.e., Amazon and Schlumberger go up and down completely randomly.

Pair Corralation between Amazon and Schlumberger

Assuming the 90 days trading horizon Amazon Inc is expected to under-perform the Schlumberger. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.29 times less risky than Schlumberger. The stock trades about -0.12 of its potential returns per unit of risk. The Schlumberger Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  75,672  in Schlumberger Limited on December 25, 2024 and sell it today you would earn a total of  6,828  from holding Schlumberger Limited or generate 9.02% return on investment over 90 days.

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

Amazon Inc  vs.  Schlumberger Limited

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. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Schlumberger Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Schlumberger may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Amazon and Schlumberger

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

The idea behind Amazon Inc and Schlumberger Limited 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.