Correlation Between Amazon and African Discovery

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

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

Diversification Opportunities for Amazon and African Discovery

-0.02

Correlation Coefficient

Amazon  African Discovery

Good diversification

The 3 months correlation between Amazon and African is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and African Discovery Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Discovery 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 African Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Discovery has no effect on the direction of Amazon i.e., Amazon and African Discovery go up and down completely randomly.

Pair Corralation between Amazon and African Discovery

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the African Discovery. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 5.57 times less risky than African Discovery. The stock trades about -0.09 of its potential returns per unit of risk. The African Discovery Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.70  in African Discovery Group on December 26, 2024 and sell it today you would earn a total of  0.20  from holding African Discovery Group or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  African Discovery Group

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

African Discovery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in African Discovery Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, African Discovery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and African Discovery

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

The idea behind Amazon Inc and African Discovery Group 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.