Correlation Between Amazon and MCB Bank
Can any of the company-specific risk be diversified away by investing in both Amazon and MCB Bank 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 MCB Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and MCB Bank, you can compare the effects of market volatilities on Amazon and MCB Bank 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 MCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and MCB Bank.
Diversification Opportunities for Amazon and MCB Bank
Poor diversification
The 3 months correlation between Amazon and MCB is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank 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 MCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Bank has no effect on the direction of Amazon i.e., Amazon and MCB Bank go up and down completely randomly.
Pair Corralation between Amazon and MCB Bank
Given the investment horizon of 90 days Amazon is expected to generate 1.37 times less return on investment than MCB Bank. But when comparing it to its historical volatility, Amazon Inc is 1.07 times less risky than MCB Bank. It trades about 0.19 of its potential returns per unit of risk. MCB Bank is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 20,965 in MCB Bank on September 5, 2024 and sell it today you would earn a total of 6,806 from holding MCB Bank or generate 32.46% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Amazon Inc vs. MCB Bank
Performance |
Timeline |
Amazon Inc |
MCB Bank |
Amazon and MCB Bank Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Amazon and MCB Bank
The main advantage of trading using opposite Amazon and MCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, MCB Bank 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 MCB Bank will offset losses from the drop in MCB Bank's long position.The idea behind Amazon Inc and MCB Bank 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.MCB Bank vs. Masood Textile Mills | MCB Bank vs. Fauji Foods | MCB Bank vs. KSB Pumps | MCB Bank vs. Mari Petroleum |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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