Correlation Between Amazon and BCN

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

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

Diversification Opportunities for Amazon and BCN

-0.38

Correlation Coefficient

Amazon  BCN

Very good diversification

The 3 months correlation between Amazon and BCN is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and BCN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCN 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 BCN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCN has no effect on the direction of Amazon i.e., Amazon and BCN go up and down completely randomly.

Pair Corralation between Amazon and BCN

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.09 times more return on investment than BCN. However, Amazon Inc is 10.85 times less risky than BCN. It trades about 0.22 of its potential returns per unit of risk. BCN is currently generating about -0.17 per unit of risk. If you would invest  19,578  in Amazon Inc on September 5, 2024 and sell it today you would earn a total of  1,766  from holding Amazon Inc or generate 9.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Amazon Inc  vs.  BCN

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.

BCN

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BCN are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BCN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and BCN

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

The idea behind Amazon Inc and BCN 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.