Correlation Between Amazon and Jennison Natural

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Can any of the company-specific risk be diversified away by investing in both Amazon and Jennison Natural 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 Jennison Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Jennison Natural Resources, you can compare the effects of market volatilities on Amazon and Jennison Natural 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 Jennison Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Jennison Natural.

Diversification Opportunities for Amazon and Jennison Natural

0.45
  Correlation Coefficient

Very weak diversification

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

Pair Corralation between Amazon and Jennison Natural

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.46 times more return on investment than Jennison Natural. However, Amazon is 1.46 times more volatile than Jennison Natural Resources. It trades about 0.1 of its potential returns per unit of risk. Jennison Natural Resources is currently generating about 0.02 per unit of risk. If you would invest  8,786  in Amazon Inc on September 6, 2024 and sell it today you would earn a total of  13,030  from holding Amazon Inc or generate 148.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Jennison Natural Resources

 Performance 
       Timeline  
Amazon Inc 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) 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.
Jennison Natural Res 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Jennison Natural Resources are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Jennison Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Amazon and Jennison Natural Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Jennison Natural

The main advantage of trading using opposite Amazon and Jennison Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Jennison Natural 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 Jennison Natural will offset losses from the drop in Jennison Natural's long position.
The idea behind Amazon Inc and Jennison Natural Resources 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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