Correlation Between Amazon and Nabors Industries

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

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

Diversification Opportunities for Amazon and Nabors Industries

-0.45

Correlation Coefficient

Amazon  Nabors Industries

Very good diversification

The 3 months correlation between Amazon and Nabors is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries 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 Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Amazon i.e., Amazon and Nabors Industries go up and down completely randomly.

Pair Corralation between Amazon and Nabors Industries

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.35 times more return on investment than Nabors Industries. However, Amazon Inc is 2.82 times less risky than Nabors Industries. It trades about 0.26 of its potential returns per unit of risk. Nabors Industries is currently generating about -0.38 per unit of risk. If you would invest  20,288  in Amazon Inc on September 21, 2024 and sell it today you would earn a total of  2,204  from holding Amazon Inc or generate 10.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  Nabors Industries

Amazon Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Nabors Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Amazon and Nabors Industries

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

The idea behind Amazon Inc and Nabors Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.