Correlation Between IShares Fundamental and Amazon CDR

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

By analyzing existing cross correlation between iShares Fundamental Hedged and Amazon CDR, you can compare the effects of market volatilities on IShares Fundamental and Amazon CDR 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 IShares Fundamental with a short position of Amazon CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Fundamental and Amazon CDR.

Diversification Opportunities for IShares Fundamental and Amazon CDR

-0.05

Correlation Coefficient

IShares Fundamental  Amazon CDR

Good diversification

The 3 months correlation between IShares and Amazon is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and Amazon CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon CDR and IShares Fundamental 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 iShares Fundamental Hedged are associated (or correlated) with Amazon CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon CDR has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and Amazon CDR go up and down completely randomly.

Pair Corralation between IShares Fundamental and Amazon CDR

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to under-perform the Amazon CDR. But the etf apears to be less risky and, when comparing its historical volatility, iShares Fundamental Hedged is 2.59 times less risky than Amazon CDR. The etf trades about -0.08 of its potential returns per unit of risk. The Amazon CDR is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,477  in Amazon CDR on November 29, 2024 and sell it today you would lose (1.00) from holding Amazon CDR or give up 0.04% of portfolio value over 90 days.

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

iShares Fundamental Hedged  vs.  Amazon CDR

iShares Fundamental

Risk-Adjusted Performance

Very Weak

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

Amazon CDR

Risk-Adjusted Performance

Weak

Over the last 90 days Amazon CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Amazon CDR is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Fundamental and Amazon CDR

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

The idea behind iShares Fundamental Hedged and Amazon CDR 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 Global Correlations module to find global opportunities by holding instruments from different markets.