Correlation Between Amazon and ARC Document

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

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

Diversification Opportunities for Amazon and ARC Document

0.62

Correlation Coefficient

Amazon  ARC Document

Poor diversification

The 3 months correlation between Amazon and ARC is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and ARC Document Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Document Solutions 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 ARC Document. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARC Document Solutions has no effect on the direction of Amazon i.e., Amazon and ARC Document go up and down completely randomly.

Pair Corralation between Amazon and ARC Document

Given the investment horizon of 90 days Amazon Inc is expected to generate 8.54 times more return on investment than ARC Document. However, Amazon is 8.54 times more volatile than ARC Document Solutions. It trades about 0.15 of its potential returns per unit of risk. ARC Document Solutions is currently generating about 0.21 per unit of risk. If you would invest  17,625  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,164  from holding Amazon Inc or generate 17.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.19%
Values	Daily Returns

Amazon Inc  vs.  ARC Document Solutions

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) 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.

ARC Document Solutions

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ARC Document Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ARC Document is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Amazon and ARC Document

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

The idea behind Amazon Inc and ARC Document Solutions 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.