Correlation Between Amazon CDR and Clean Air

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

By analyzing existing cross correlation between Amazon CDR and Clean Air Metals, you can compare the effects of market volatilities on Amazon CDR and Clean Air 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 CDR with a short position of Clean Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon CDR and Clean Air.

Diversification Opportunities for Amazon CDR and Clean Air

-0.77

Correlation Coefficient

Amazon CDR  Clean Air

Pay attention - limited upside

The 3 months correlation between Amazon and Clean is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Clean Air Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Air Metals and Amazon CDR 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 CDR are associated (or correlated) with Clean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Air Metals has no effect on the direction of Amazon CDR i.e., Amazon CDR and Clean Air go up and down completely randomly.

Pair Corralation between Amazon CDR and Clean Air

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.05 times less return on investment than Clean Air. But when comparing it to its historical volatility, Amazon CDR is 4.39 times less risky than Clean Air. It trades about 0.1 of its potential returns per unit of risk. Clean Air Metals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Clean Air Metals on October 8, 2024 and sell it today you would lose (6.50) from holding Clean Air Metals or give up 54.17% of portfolio value over 90 days.

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

Amazon CDR  vs.  Clean Air Metals

Amazon CDR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Amazon CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Clean Air Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Air Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Clean Air is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Amazon CDR and Clean Air

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

The idea behind Amazon CDR and Clean Air Metals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.