Correlation Between Amazon and IShares MSCI

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

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

Diversification Opportunities for Amazon and IShares MSCI

0.79

Correlation Coefficient

Amazon  IShares MSCI

Poor diversification

The 3 months correlation between Amazon and IShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and iShares MSCI ACWI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI ACWI 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI ACWI has no effect on the direction of Amazon i.e., Amazon and IShares MSCI go up and down completely randomly.

Pair Corralation between Amazon and IShares MSCI

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.93 times more return on investment than IShares MSCI. However, Amazon is 2.93 times more volatile than iShares MSCI ACWI. It trades about 0.2 of its potential returns per unit of risk. iShares MSCI ACWI is currently generating about 0.17 per unit of risk. If you would invest  18,700  in Amazon Inc on September 12, 2024 and sell it today you would earn a total of  4,318  from holding Amazon Inc or generate 23.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  iShares MSCI ACWI

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) 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.

iShares MSCI ACWI

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI ACWI are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares MSCI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Amazon and IShares MSCI

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

The idea behind Amazon Inc and iShares MSCI ACWI 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.