Correlation Between EBay and Amazon

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

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

Diversification Opportunities for EBay and Amazon

0.67

Correlation Coefficient

EBay  Amazon

Poor diversification

The 3 months correlation between EBay and Amazon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding eBay Inc and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and EBay 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 eBay Inc 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 EBay i.e., EBay and Amazon go up and down completely randomly.

Pair Corralation between EBay and Amazon

Assuming the 90 days trading horizon EBay is expected to generate 1.88 times less return on investment than Amazon. In addition to that, EBay is 1.13 times more volatile than Amazon Inc. It trades about 0.11 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.23 per unit of volatility. If you would invest  5,348  in Amazon Inc on September 23, 2024 and sell it today you would earn a total of  1,522  from holding Amazon Inc or generate 28.46% return on investment over 90 days.

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

eBay Inc  vs.  Amazon Inc

eBay Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EBay sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with EBay and Amazon

The main advantage of trading using opposite EBay and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBay 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 eBay Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.