Correlation Between Amazon CDR and Doman Building

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

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

Diversification Opportunities for Amazon CDR and Doman Building

-0.37

Correlation Coefficient

Amazon CDR  Doman Building

Very good diversification

The 3 months correlation between Amazon and Doman is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Doman Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doman Building Materials 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 Doman Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doman Building Materials has no effect on the direction of Amazon CDR i.e., Amazon CDR and Doman Building go up and down completely randomly.

Pair Corralation between Amazon CDR and Doman Building

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.2 times more return on investment than Doman Building. However, Amazon CDR is 1.2 times more volatile than Doman Building Materials. It trades about 0.01 of its potential returns per unit of risk. Doman Building Materials is currently generating about -0.29 per unit of risk. If you would invest  2,508  in Amazon CDR on December 1, 2024 and sell it today you would earn a total of  8.00  from holding Amazon CDR or generate 0.32% return on investment over 90 days.

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

Amazon CDR  vs.  Doman Building Materials

Amazon CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Amazon CDR is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Doman Building Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Amazon CDR and Doman Building

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

The idea behind Amazon CDR and Doman Building Materials 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.