Correlation Between Amazon and Visa

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

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

Diversification Opportunities for Amazon and Visa

0.6

Correlation Coefficient

Amazon  Visa

Poor diversification

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

Pair Corralation between Amazon and Visa

Assuming the 90 days trading horizon Amazon Inc is expected to under-perform the Visa. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.32 times less risky than Visa. The stock trades about -0.31 of its potential returns per unit of risk. The Visa Inc is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  9,759  in Visa Inc on October 15, 2024 and sell it today you would lose (459.00) from holding Visa Inc or give up 4.7% of portfolio value over 90 days.

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

Amazon Inc  vs.  Visa Inc

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.

Visa Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Visa sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Visa

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

The idea behind Amazon Inc and Visa Inc 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.