Correlation Between Amazon and Boohoo PLC

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

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

Diversification Opportunities for Amazon and Boohoo PLC

0.56

Correlation Coefficient

Amazon  Boohoo PLC

Very weak diversification

The 3 months correlation between Amazon and Boohoo is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and BoohooCom PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BoohooCom PLC ADR 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 Boohoo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BoohooCom PLC ADR has no effect on the direction of Amazon i.e., Amazon and Boohoo PLC go up and down completely randomly.

Pair Corralation between Amazon and Boohoo PLC

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.4 times more return on investment than Boohoo PLC. However, Amazon Inc is 2.52 times less risky than Boohoo PLC. It trades about -0.02 of its potential returns per unit of risk. BoohooCom PLC ADR is currently generating about -0.04 per unit of risk. If you would invest  21,816  in Amazon Inc on December 4, 2024 and sell it today you would lose (588.00) from holding Amazon Inc or give up 2.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.16%
Values	Daily Returns

Amazon Inc  vs.  BoohooCom PLC ADR

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 very healthy basic indicators, Amazon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

BoohooCom PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days BoohooCom PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Amazon and Boohoo PLC

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

The idea behind Amazon Inc and BoohooCom PLC ADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.