Correlation Between Amazon CDR and Firm Capital

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

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

Diversification Opportunities for Amazon CDR and Firm Capital

0.69

Correlation Coefficient

Amazon CDR  Firm Capital

Poor diversification

The 3 months correlation between Amazon and Firm is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Firm Capital Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firm Capital Mortgage 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 Firm Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firm Capital Mortgage has no effect on the direction of Amazon CDR i.e., Amazon CDR and Firm Capital go up and down completely randomly.

Pair Corralation between Amazon CDR and Firm Capital

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.47 times more return on investment than Firm Capital. However, Amazon CDR is 1.47 times more volatile than Firm Capital Mortgage. It trades about 0.35 of its potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.07 per unit of risk. If you would invest  2,351  in Amazon CDR on September 23, 2024 and sell it today you would earn a total of  324.00  from holding Amazon CDR or generate 13.78% return on investment over 90 days.

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

Amazon CDR  vs.  Firm Capital Mortgage

Amazon CDR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 10 (%) 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.

Firm Capital Mortgage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Firm Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Amazon CDR and Firm Capital

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

The idea behind Amazon CDR and Firm Capital Mortgage 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.