Correlation Between Amazon and COVER

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

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

Diversification Opportunities for Amazon and COVER

0.68

Correlation Coefficient

Amazon  COVER

Poor diversification

The 3 months correlation between Amazon and COVER is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and COVER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVER 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 COVER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVER has no effect on the direction of Amazon i.e., Amazon and COVER go up and down completely randomly.

Pair Corralation between Amazon and COVER

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.5 times more return on investment than COVER. However, Amazon Inc is 1.98 times less risky than COVER. It trades about 0.09 of its potential returns per unit of risk. COVER is currently generating about 0.01 per unit of risk. If you would invest  9,249  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  11,540  from holding Amazon Inc or generate 124.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.12%
Values	Daily Returns

Amazon Inc  vs.  COVER

Amazon Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 12 (%) 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.

COVER

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Amazon and COVER

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

The idea behind Amazon Inc and COVER 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.