Correlation Between Amazon and Madison Pacific

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

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

Diversification Opportunities for Amazon and Madison Pacific

-0.22

Correlation Coefficient

Amazon  Madison Pacific

Very good diversification

The 3 months correlation between Amazon and Madison is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Madison Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Pacific Prop 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 Madison Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Pacific Prop has no effect on the direction of Amazon i.e., Amazon and Madison Pacific go up and down completely randomly.

Pair Corralation between Amazon and Madison Pacific

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.64 times more return on investment than Madison Pacific. However, Amazon Inc is 1.56 times less risky than Madison Pacific. It trades about 0.2 of its potential returns per unit of risk. Madison Pacific Properties is currently generating about 0.05 per unit of risk. If you would invest  18,452  in Amazon Inc on September 11, 2024 and sell it today you would earn a total of  4,157  from holding Amazon Inc or generate 22.53% 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.  Madison Pacific Properties

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) 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.

Madison Pacific Prop

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Madison Pacific may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and Madison Pacific

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

The idea behind Amazon Inc and Madison Pacific Properties 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.