Correlation Between Amazon CDR and Colonial Coal

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

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

Diversification Opportunities for Amazon CDR and Colonial Coal

-0.82

Correlation Coefficient

Amazon CDR  Colonial Coal

Pay attention - limited upside

The 3 months correlation between Amazon and Colonial is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Colonial Coal International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colonial Coal Intern 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 Colonial Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colonial Coal Intern has no effect on the direction of Amazon CDR i.e., Amazon CDR and Colonial Coal go up and down completely randomly.

Pair Corralation between Amazon CDR and Colonial Coal

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.11 times less return on investment than Colonial Coal. But when comparing it to its historical volatility, Amazon CDR is 2.28 times less risky than Colonial Coal. It trades about 0.08 of its potential returns per unit of risk. Colonial Coal International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  149.00  in Colonial Coal International on October 4, 2024 and sell it today you would earn a total of  44.00  from holding Colonial Coal International or generate 29.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.7%
Values	Daily Returns

Amazon CDR  vs.  Colonial Coal International

Amazon CDR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Amazon CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Colonial Coal Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colonial Coal International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Amazon CDR and Colonial Coal

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

The idea behind Amazon CDR and Colonial Coal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.