Correlation Between Amazon and Purple Biotech

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

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

Diversification Opportunities for Amazon and Purple Biotech

-0.72

Correlation Coefficient

Amazon  Purple Biotech

Pay attention - limited upside

The 3 months correlation between Amazon and Purple is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Purple Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Biotech 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 Purple Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purple Biotech has no effect on the direction of Amazon i.e., Amazon and Purple Biotech go up and down completely randomly.

Pair Corralation between Amazon and Purple Biotech

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.12 times more return on investment than Purple Biotech. However, Amazon Inc is 8.69 times less risky than Purple Biotech. It trades about 0.17 of its potential returns per unit of risk. Purple Biotech is currently generating about 0.01 per unit of risk. If you would invest  17,789  in Amazon Inc on September 5, 2024 and sell it today you would earn a total of  3,555  from holding Amazon Inc or generate 19.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.88%
Values	Daily Returns

Amazon Inc  vs.  Purple Biotech

Amazon Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) 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.

Purple Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Purple Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Purple Biotech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Purple Biotech

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

The idea behind Amazon Inc and Purple Biotech 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.