Correlation Between Amazon CDR and Western Energy

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

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

Diversification Opportunities for Amazon CDR and Western Energy

-0.22

Correlation Coefficient

Amazon CDR  Western Energy

Very good diversification

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

Pair Corralation between Amazon CDR and Western Energy

Assuming the 90 days trading horizon Amazon CDR is expected to generate 0.64 times more return on investment than Western Energy. However, Amazon CDR is 1.56 times less risky than Western Energy. It trades about 0.08 of its potential returns per unit of risk. Western Energy Services is currently generating about 0.0 per unit of risk. If you would invest  1,376  in Amazon CDR on October 24, 2024 and sell it today you would earn a total of  1,363  from holding Amazon CDR or generate 99.06% 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.  Western Energy Services

Amazon CDR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Amazon CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Western Energy Services

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Energy Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Western Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Amazon CDR and Western Energy

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

The idea behind Amazon CDR and Western Energy Services 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.