Correlation Between Amazon CDR and Topicus

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

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

Diversification Opportunities for Amazon CDR and Topicus

-0.22

Correlation Coefficient

Amazon CDR  Topicus

Very good diversification

The 3 months correlation between Amazon and Topicus is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Topicus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topicus 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 Topicus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topicus has no effect on the direction of Amazon CDR i.e., Amazon CDR and Topicus go up and down completely randomly.

Pair Corralation between Amazon CDR and Topicus

Assuming the 90 days trading horizon Amazon CDR is expected to under-perform the Topicus. But the stock apears to be less risky and, when comparing its historical volatility, Amazon CDR is 1.21 times less risky than Topicus. The stock trades about -0.08 of its potential returns per unit of risk. The Topicus is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  12,180  in Topicus on December 28, 2024 and sell it today you would earn a total of  2,107  from holding Topicus or generate 17.3% 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.  Topicus

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Topicus

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Topicus are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Topicus showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon CDR and Topicus

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

The idea behind Amazon CDR and Topicus 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .