Correlation Between Financial and Amazon CDR

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

By analyzing existing cross correlation between Financial 15 Split and Amazon CDR, you can compare the effects of market volatilities on Financial 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 Financial with a short position of Amazon CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and Amazon CDR.

Diversification Opportunities for Financial and Amazon CDR

0.81

Correlation Coefficient

Financial  Amazon CDR

Very poor diversification

The 3 months correlation between Financial and Amazon is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and Amazon CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon CDR and Financial 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 Financial 15 Split 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 Financial i.e., Financial and Amazon CDR go up and down completely randomly.

Pair Corralation between Financial and Amazon CDR

Assuming the 90 days trading horizon Financial is expected to generate 4.15 times less return on investment than Amazon CDR. But when comparing it to its historical volatility, Financial 15 Split is 7.07 times less risky than Amazon CDR. It trades about 0.26 of its potential returns per unit of risk. Amazon CDR is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,105  in Amazon CDR on September 2, 2024 and sell it today you would earn a total of  372.00  from holding Amazon CDR or generate 17.67% return on investment over 90 days.

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

Financial 15 Split  vs.  Amazon CDR

Financial 15 Split

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Amazon CDR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Amazon CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial and Amazon CDR

The main advantage of trading using opposite Financial and Amazon CDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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 Financial 15 Split 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.