Correlation Between Amazon and Monroe Capital

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

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

Diversification Opportunities for Amazon and Monroe Capital

0.61

Correlation Coefficient

Amazon  Monroe Capital

Poor diversification

The 3 months correlation between Amazon and Monroe is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Monroe Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monroe Capital Corp 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 Monroe Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monroe Capital Corp has no effect on the direction of Amazon i.e., Amazon and Monroe Capital go up and down completely randomly.

Pair Corralation between Amazon and Monroe Capital

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.32 times more return on investment than Monroe Capital. However, Amazon is 1.32 times more volatile than Monroe Capital Corp. It trades about 0.18 of its potential returns per unit of risk. Monroe Capital Corp is currently generating about 0.14 per unit of risk. If you would invest  17,333  in Amazon Inc on September 4, 2024 and sell it today you would earn a total of  3,738  from holding Amazon Inc or generate 21.57% 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.  Monroe Capital Corp

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.

Monroe Capital Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monroe Capital Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Monroe Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Amazon and Monroe Capital

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

The idea behind Amazon Inc and Monroe Capital Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.