Correlation Between Amazon and Century Small
Can any of the company-specific risk be diversified away by investing in both Amazon and Century Small 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 Century Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Century Small Cap, you can compare the effects of market volatilities on Amazon and Century Small 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 Century Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Century Small.
Diversification Opportunities for Amazon and Century Small
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Amazon and Century is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap 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 Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Amazon i.e., Amazon and Century Small go up and down completely randomly.
Pair Corralation between Amazon and Century Small
Given the investment horizon of 90 days Amazon Inc is expected to generate 1.68 times more return on investment than Century Small. However, Amazon is 1.68 times more volatile than Century Small Cap. It trades about 0.1 of its potential returns per unit of risk. Century Small Cap is currently generating about 0.08 per unit of risk. If you would invest 8,786 in Amazon Inc on September 6, 2024 and sell it today you would earn a total of 13,030 from holding Amazon Inc or generate 148.3% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Amazon Inc vs. Century Small Cap
Performance |
Timeline |
Amazon Inc |
Century Small Cap |
Amazon and Century Small Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Amazon and Century Small
The main advantage of trading using opposite Amazon and Century Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Century Small 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 Century Small will offset losses from the drop in Century Small's long position.The idea behind Amazon Inc and Century Small Cap 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.Century Small vs. Congress Mid Cap | Century Small vs. Congress Mid Cap | Century Small vs. Congress Large Cap | Century Small vs. Congress Large Cap |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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