Correlation Between Amazon and Aura Investments

Can any of the company-specific risk be diversified away by investing in both Amazon and Aura Investments 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 Investments 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 Investments, you can compare the effects of market volatilities on Amazon and Aura Investments 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 Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Aura Investments.

Diversification Opportunities for Amazon and Aura Investments

0.85

Correlation Coefficient

Amazon  Aura Investments

Very poor diversification

The 3 months correlation between Amazon and Aura is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Aura Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aura Investments 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 Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aura Investments has no effect on the direction of Amazon i.e., Amazon and Aura Investments go up and down completely randomly.

Pair Corralation between Amazon and Aura Investments

Given the investment horizon of 90 days Amazon is expected to generate 1.3 times less return on investment than Aura Investments. But when comparing it to its historical volatility, Amazon Inc is 1.32 times less risky than Aura Investments. It trades about 0.15 of its potential returns per unit of risk. Aura Investments is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  158,357  in Aura Investments on September 3, 2024 and sell it today you would earn a total of  25,843  from holding Aura Investments or generate 16.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	71.88%
Values	Daily Returns

Amazon Inc  vs.  Aura Investments

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.

Aura Investments

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aura Investments are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aura Investments sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Aura Investments

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

The idea behind Amazon Inc and Aura Investments 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.