Correlation Between Amazon and Aura Energy

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

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

Diversification Opportunities for Amazon and Aura Energy

0.71

Correlation Coefficient

Amazon  Aura Energy

Poor diversification

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

Pair Corralation between Amazon and Aura Energy

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.43 times more return on investment than Aura Energy. However, Amazon Inc is 2.32 times less risky than Aura Energy. It trades about -0.08 of its potential returns per unit of risk. Aura Energy Limited is currently generating about -0.05 per unit of risk. If you would invest  22,130  in Amazon Inc on December 28, 2024 and sell it today you would lose (2,017) from holding Amazon Inc or give up 9.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.77%
Values	Daily Returns

Amazon Inc  vs.  Aura Energy Limited

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.

Aura Energy Limited

Risk-Adjusted Performance

Insignificant

Over the last 90 days Aura Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Amazon and Aura Energy

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

The idea behind Amazon Inc and Aura Energy Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.