Correlation Between Amazon CDR and ROK Resources

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

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

Diversification Opportunities for Amazon CDR and ROK Resources

-0.6

Correlation Coefficient

Amazon CDR  ROK Resources

Excellent diversification

The 3 months correlation between Amazon and ROK is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources 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 ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Amazon CDR i.e., Amazon CDR and ROK Resources go up and down completely randomly.

Pair Corralation between Amazon CDR and ROK Resources

Assuming the 90 days trading horizon Amazon CDR is expected to under-perform the ROK Resources. But the stock apears to be less risky and, when comparing its historical volatility, Amazon CDR is 1.98 times less risky than ROK Resources. The stock trades about -0.03 of its potential returns per unit of risk. The ROK Resources is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  16.00  in ROK Resources on October 11, 2024 and sell it today you would earn a total of  3.00  from holding ROK Resources or generate 18.75% 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.  ROK Resources

Amazon CDR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 12 (%) 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.

ROK Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROK Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Amazon CDR and ROK Resources

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

The idea behind Amazon CDR and ROK Resources 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.