Correlation Between Amazon CDR and Keg Royalties

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

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

Diversification Opportunities for Amazon CDR and Keg Royalties

0.2

Correlation Coefficient

Amazon CDR  Keg Royalties

Modest diversification

The 3 months correlation between Amazon and Keg is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and The Keg Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keg Royalties 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 Keg Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keg Royalties has no effect on the direction of Amazon CDR i.e., Amazon CDR and Keg Royalties go up and down completely randomly.

Pair Corralation between Amazon CDR and Keg Royalties

Assuming the 90 days trading horizon Amazon CDR is expected to generate 2.26 times more return on investment than Keg Royalties. However, Amazon CDR is 2.26 times more volatile than The Keg Royalties. It trades about 0.18 of its potential returns per unit of risk. The Keg Royalties is currently generating about 0.07 per unit of risk. If you would invest  2,072  in Amazon CDR on September 4, 2024 and sell it today you would earn a total of  436.00  from holding Amazon CDR or generate 21.04% return on investment over 90 days.

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

Amazon CDR  vs.  The Keg Royalties

Amazon CDR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 13 (%) 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.

Keg Royalties

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Keg Royalties are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Keg Royalties is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon CDR and Keg Royalties

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

The idea behind Amazon CDR and The Keg Royalties 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.