Correlation Between Amazon and NRJ

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

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

Diversification Opportunities for Amazon and NRJ

0.7

Correlation Coefficient

Amazon  NRJ

Poor diversification

The 3 months correlation between Amazon and NRJ is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and NRJ Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRJ Group 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 NRJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRJ Group has no effect on the direction of Amazon i.e., Amazon and NRJ go up and down completely randomly.

Pair Corralation between Amazon and NRJ

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the NRJ. In addition to that, Amazon is 1.39 times more volatile than NRJ Group. It trades about -0.1 of its total potential returns per unit of risk. NRJ Group is currently generating about 0.01 per unit of volatility. If you would invest  694.00  in NRJ Group on December 25, 2024 and sell it today you would earn a total of  0.00  from holding NRJ Group or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.72%
Values	Daily Returns

Amazon Inc  vs.  NRJ Group

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

NRJ Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days NRJ Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, NRJ is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and NRJ

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

The idea behind Amazon Inc and NRJ Group 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.