Correlation Between Amazon and Allied Machinery

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

By analyzing existing cross correlation between Amazon Inc and Allied Machinery Co, you can compare the effects of market volatilities on Amazon and Allied Machinery 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 with a short position of Allied Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Allied Machinery.

Diversification Opportunities for Amazon and Allied Machinery

0.77

Correlation Coefficient

Amazon  Allied Machinery

Poor diversification

The 3 months correlation between Amazon and Allied is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery and Amazon 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 Inc are associated (or correlated) with Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Amazon i.e., Amazon and Allied Machinery go up and down completely randomly.

Pair Corralation between Amazon and Allied Machinery

Given the investment horizon of 90 days Amazon is expected to generate 1.77 times less return on investment than Allied Machinery. But when comparing it to its historical volatility, Amazon Inc is 1.66 times less risky than Allied Machinery. It trades about 0.17 of its potential returns per unit of risk. Allied Machinery Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,231  in Allied Machinery Co on September 5, 2024 and sell it today you would earn a total of  410.00  from holding Allied Machinery Co or generate 33.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

Amazon Inc  vs.  Allied Machinery Co

Amazon Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Allied Machinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Allied Machinery

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

The idea behind Amazon Inc and Allied Machinery Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.