Correlation Between Amazon and IShares Utilities

Can any of the company-specific risk be diversified away by investing in both Amazon and IShares Utilities 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 Utilities 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 Utilities ETF, you can compare the effects of market volatilities on Amazon and IShares Utilities 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 Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and IShares Utilities.

Diversification Opportunities for Amazon and IShares Utilities

-0.25

Correlation Coefficient

Amazon  IShares Utilities

Very good diversification

The 3 months correlation between Amazon and IShares is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and iShares Utilities ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Utilities ETF 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 Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Utilities ETF has no effect on the direction of Amazon i.e., Amazon and IShares Utilities go up and down completely randomly.

Pair Corralation between Amazon and IShares Utilities

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.69 times more return on investment than IShares Utilities. However, Amazon is 1.69 times more volatile than iShares Utilities ETF. It trades about 0.02 of its potential returns per unit of risk. iShares Utilities ETF is currently generating about -0.01 per unit of risk. If you would invest  21,071  in Amazon Inc on December 2, 2024 and sell it today you would earn a total of  157.00  from holding Amazon Inc or generate 0.75% return on investment over 90 days.

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

Amazon Inc  vs.  iShares Utilities ETF

Amazon Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

iShares Utilities ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Utilities ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, IShares Utilities is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Amazon and IShares Utilities

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

The idea behind Amazon Inc and iShares Utilities ETF 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.