Correlation Between Amazon and LH Hotel

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

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

Diversification Opportunities for Amazon and LH Hotel

0.02

Correlation Coefficient

Amazon  LH Hotel

Significant diversification

The 3 months correlation between Amazon and LHHOTEL is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and LH Hotel Leasehold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LH Hotel Leasehold 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 LH Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LH Hotel Leasehold has no effect on the direction of Amazon i.e., Amazon and LH Hotel go up and down completely randomly.

Pair Corralation between Amazon and LH Hotel

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.76 times more return on investment than LH Hotel. However, Amazon Inc is 1.32 times less risky than LH Hotel. It trades about 0.15 of its potential returns per unit of risk. LH Hotel Leasehold is currently generating about -0.03 per unit of risk. If you would invest  17,625  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,164  from holding Amazon Inc or generate 17.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Amazon Inc  vs.  LH Hotel Leasehold

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) 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.

LH Hotel Leasehold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LH Hotel Leasehold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, LH Hotel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Amazon and LH Hotel

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

The idea behind Amazon Inc and LH Hotel Leasehold 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.