Correlation Between Amazon and Valeura Energy

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

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

Diversification Opportunities for Amazon and Valeura Energy

0.48

Correlation Coefficient

Amazon  Valeura Energy

Very weak diversification

The 3 months correlation between Amazon and Valeura is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Valeura Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valeura Energy 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 Valeura Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valeura Energy has no effect on the direction of Amazon i.e., Amazon and Valeura Energy go up and down completely randomly.

Pair Corralation between Amazon and Valeura Energy

Given the investment horizon of 90 days Amazon is expected to generate 11.3 times less return on investment than Valeura Energy. But when comparing it to its historical volatility, Amazon Inc is 2.05 times less risky than Valeura Energy. It trades about 0.02 of its potential returns per unit of risk. Valeura Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  428.00  in Valeura Energy on December 2, 2024 and sell it today you would earn a total of  65.00  from holding Valeura Energy or generate 15.19% return on investment over 90 days.

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

Amazon Inc  vs.  Valeura Energy

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.

Valeura Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Valeura Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Valeura Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Valeura Energy

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

The idea behind Amazon Inc and Valeura Energy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.