Correlation Between Amazon and Gulf Keystone

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

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

Diversification Opportunities for Amazon and Gulf Keystone

-0.5

Correlation Coefficient

Amazon  Gulf Keystone

Very good diversification

The 3 months correlation between Amazon and Gulf is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Gulf Keystone Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Keystone Petroleum 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 Gulf Keystone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Keystone Petroleum has no effect on the direction of Amazon i.e., Amazon and Gulf Keystone go up and down completely randomly.

Pair Corralation between Amazon and Gulf Keystone

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Gulf Keystone. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 2.69 times less risky than Gulf Keystone. The stock trades about -0.08 of its potential returns per unit of risk. The Gulf Keystone Petroleum is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Gulf Keystone Petroleum on December 28, 2024 and sell it today you would earn a total of  90.00  from holding Gulf Keystone Petroleum or generate 52.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.67%
Values	Daily Returns

Amazon Inc  vs.  Gulf Keystone Petroleum

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 latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Gulf Keystone Petroleum

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Gulf Keystone

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

The idea behind Amazon Inc and Gulf Keystone Petroleum 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.