Correlation Between Amazon and News

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

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

Diversification Opportunities for Amazon and News

0.88

Correlation Coefficient

Amazon  News

Very poor diversification

The 3 months correlation between Amazon and News is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and News Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on News 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 News. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of News has no effect on the direction of Amazon i.e., Amazon and News go up and down completely randomly.

Pair Corralation between Amazon and News

Given the investment horizon of 90 days Amazon is expected to generate 1.02 times less return on investment than News. In addition to that, Amazon is 1.37 times more volatile than News Corporation. It trades about 0.2 of its total potential returns per unit of risk. News Corporation is currently generating about 0.28 per unit of volatility. If you would invest  2,400  in News Corporation on September 13, 2024 and sell it today you would earn a total of  600.00  from holding News Corporation or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Amazon Inc  vs.  News Corp.

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.

News

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in News Corporation are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, News reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and News

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

The idea behind Amazon Inc and News Corporation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..