Correlation Between Amazon and BMO Equal

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

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

Diversification Opportunities for Amazon and BMO Equal

0.03

Correlation Coefficient

Amazon  BMO Equal

Significant diversification

The 3 months correlation between Amazon and BMO is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 BMO Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of Amazon i.e., Amazon and BMO Equal go up and down completely randomly.

Pair Corralation between Amazon and BMO Equal

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the BMO Equal. In addition to that, Amazon is 1.58 times more volatile than BMO Equal Weight. It trades about -0.08 of its total potential returns per unit of risk. BMO Equal Weight is currently generating about 0.1 per unit of volatility. If you would invest  7,208  in BMO Equal Weight on December 28, 2024 and sell it today you would earn a total of  457.00  from holding BMO Equal Weight or generate 6.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Amazon Inc  vs.  BMO Equal Weight

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.

BMO Equal Weight

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Equal Weight are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Equal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Amazon and BMO Equal

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

The idea behind Amazon Inc and BMO Equal Weight 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.