Correlation Between Amazon and Longleaf Partners

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

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

Diversification Opportunities for Amazon and Longleaf Partners

-0.46

Correlation Coefficient

Amazon  Longleaf Partners

Very good diversification

The 3 months correlation between Amazon and Longleaf is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Longleaf Partners Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners 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 Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners has no effect on the direction of Amazon i.e., Amazon and Longleaf Partners go up and down completely randomly.

Pair Corralation between Amazon and Longleaf Partners

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Longleaf Partners. In addition to that, Amazon is 1.98 times more volatile than Longleaf Partners International. It trades about -0.12 of its total potential returns per unit of risk. Longleaf Partners International is currently generating about 0.04 per unit of volatility. If you would invest  1,502  in Longleaf Partners International on December 29, 2024 and sell it today you would earn a total of  32.00  from holding Longleaf Partners International or generate 2.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Amazon Inc  vs.  Longleaf Partners Internationa

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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Longleaf Partners

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Longleaf Partners International are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Longleaf Partners 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 Longleaf Partners

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

The idea behind Amazon Inc and Longleaf Partners International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.