Correlation Between Amazon and Innovator

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

By analyzing existing cross correlation between Amazon Inc and Innovator 20 Year, you can compare the effects of market volatilities on Amazon and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Innovator.

Diversification Opportunities for Amazon and Innovator

-0.66

Correlation Coefficient

Amazon  Innovator

Excellent diversification

The 3 months correlation between Amazon and Innovator is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Innovator 20 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator 20 Year 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator 20 Year has no effect on the direction of Amazon i.e., Amazon and Innovator go up and down completely randomly.

Pair Corralation between Amazon and Innovator

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Innovator. In addition to that, Amazon is 3.48 times more volatile than Innovator 20 Year. It trades about -0.12 of its total potential returns per unit of risk. Innovator 20 Year is currently generating about 0.07 per unit of volatility. If you would invest  1,970  in Innovator 20 Year on December 29, 2024 and sell it today you would earn a total of  41.00  from holding Innovator 20 Year or generate 2.08% 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.  Innovator 20 Year

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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Innovator 20 Year

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator 20 Year are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking indicators, Innovator is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Amazon and Innovator

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

The idea behind Amazon Inc and Innovator 20 Year 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.