Correlation Between Amazon and Government Long

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

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

Diversification Opportunities for Amazon and Government Long

-0.6

Correlation Coefficient

Amazon  Government Long

Excellent diversification

The 3 months correlation between Amazon and Government is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Government Long Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Long Bond 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 Government Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Long Bond has no effect on the direction of Amazon i.e., Amazon and Government Long go up and down completely randomly.

Pair Corralation between Amazon and Government Long

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Government Long. In addition to that, Amazon is 1.79 times more volatile than Government Long Bond. It trades about -0.09 of its total potential returns per unit of risk. Government Long Bond is currently generating about 0.08 per unit of volatility. If you would invest  10,207  in Government Long Bond on December 27, 2024 and sell it today you would earn a total of  434.00  from holding Government Long Bond or generate 4.25% return on investment over 90 days.

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

Amazon Inc  vs.  Government Long Bond

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.

Government Long Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Government Long Bond are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Government Long 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 Government Long

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

The idea behind Amazon Inc and Government Long Bond 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.