Correlation Between Extra Space and Amazon

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

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

Diversification Opportunities for Extra Space and Amazon

0.28

Correlation Coefficient

Extra Space  Amazon

Modest diversification

The 3 months correlation between Extra and Amazon is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Extra Space 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 Extra Space Storage are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Extra Space i.e., Extra Space and Amazon go up and down completely randomly.

Pair Corralation between Extra Space and Amazon

Assuming the 90 days trading horizon Extra Space Storage is expected to generate 1.24 times more return on investment than Amazon. However, Extra Space is 1.24 times more volatile than Amazon Inc. It trades about -0.08 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.15 per unit of risk. If you would invest  24,000  in Extra Space Storage on December 3, 2024 and sell it today you would lose (1,494) from holding Extra Space Storage or give up 6.22% of portfolio value over 90 days.

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

Extra Space Storage  vs.  Amazon Inc

Extra Space Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. Despite somewhat strong basic indicators, Amazon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Extra Space and Amazon

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

The idea behind Extra Space Storage and Amazon 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.