Correlation Between Amazon and Vanguard Balanced

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

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

Diversification Opportunities for Amazon and Vanguard Balanced

0.2

Correlation Coefficient

Amazon  Vanguard Balanced

Modest diversification

The 3 months correlation between Amazon and Vanguard is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Vanguard Balanced Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Balanced 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 Vanguard Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Balanced has no effect on the direction of Amazon i.e., Amazon and Vanguard Balanced go up and down completely randomly.

Pair Corralation between Amazon and Vanguard Balanced

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Vanguard Balanced. In addition to that, Amazon is 3.54 times more volatile than Vanguard Balanced Portfolio. It trades about -0.05 of its total potential returns per unit of risk. Vanguard Balanced Portfolio is currently generating about 0.14 per unit of volatility. If you would invest  3,328  in Vanguard Balanced Portfolio on December 2, 2024 and sell it today you would earn a total of  85.00  from holding Vanguard Balanced Portfolio or generate 2.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Amazon Inc  vs.  Vanguard Balanced Portfolio

Amazon Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Vanguard Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Balanced Portfolio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Vanguard Balanced

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

The idea behind Amazon Inc and Vanguard Balanced Portfolio 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.