Correlation Between Amazon CDR and Charlottes Web

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

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

Diversification Opportunities for Amazon CDR and Charlottes Web

-0.65

Correlation Coefficient

Amazon CDR  Charlottes Web

Excellent diversification

The 3 months correlation between Amazon and Charlottes is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Charlottes Web Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charlottes Web Holdings 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 Charlottes Web. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charlottes Web Holdings has no effect on the direction of Amazon CDR i.e., Amazon CDR and Charlottes Web go up and down completely randomly.

Pair Corralation between Amazon CDR and Charlottes Web

Assuming the 90 days trading horizon Amazon CDR is expected to generate 15.28 times less return on investment than Charlottes Web. But when comparing it to its historical volatility, Amazon CDR is 4.54 times less risky than Charlottes Web. It trades about 0.02 of its potential returns per unit of risk. Charlottes Web Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Charlottes Web Holdings on October 9, 2024 and sell it today you would earn a total of  1.00  from holding Charlottes Web Holdings or generate 6.25% return on investment over 90 days.

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

Amazon CDR  vs.  Charlottes Web Holdings

Amazon CDR

Risk-Adjusted Performance

15 of 100

Solid

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 abnormal technical and fundamental indicators, Amazon CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Charlottes Web Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charlottes Web Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Charlottes Web is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Amazon CDR and Charlottes Web

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

The idea behind Amazon CDR and Charlottes Web Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.