Correlation Between Amazon CDR and Wesdome Gold

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

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

Diversification Opportunities for Amazon CDR and Wesdome Gold

0.71

Correlation Coefficient

Amazon CDR  Wesdome Gold

Poor diversification

The 3 months correlation between Amazon and Wesdome is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Wesdome Gold Mines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesdome Gold Mines 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 Wesdome Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesdome Gold Mines has no effect on the direction of Amazon CDR i.e., Amazon CDR and Wesdome Gold go up and down completely randomly.

Pair Corralation between Amazon CDR and Wesdome Gold

Assuming the 90 days trading horizon Amazon CDR is expected to generate 5.59 times less return on investment than Wesdome Gold. But when comparing it to its historical volatility, Amazon CDR is 1.33 times less risky than Wesdome Gold. It trades about 0.03 of its potential returns per unit of risk. Wesdome Gold Mines is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,223  in Wesdome Gold Mines on November 29, 2024 and sell it today you would earn a total of  226.00  from holding Wesdome Gold Mines or generate 18.48% 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.  Wesdome Gold Mines

Amazon CDR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Amazon CDR is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Wesdome Gold Mines

Risk-Adjusted Performance

OK

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

Pair Trading with Amazon CDR and Wesdome Gold

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

The idea behind Amazon CDR and Wesdome Gold Mines 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.