Correlation Between GM and Amazon

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

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

Diversification Opportunities for GM and Amazon

0.56

Correlation Coefficient

GM  Amazon

Very weak diversification

The 3 months correlation between GM and Amazon is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and GM 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 General Motors 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 GM i.e., GM and Amazon go up and down completely randomly.

Pair Corralation between GM and Amazon

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.09 times more return on investment than Amazon. However, GM is 1.09 times more volatile than Amazon Inc. It trades about 0.11 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.11 per unit of risk. If you would invest  3,273  in General Motors on September 28, 2024 and sell it today you would earn a total of  2,156  from holding General Motors or generate 65.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.26%
Values	Daily Returns

General Motors  vs.  Amazon Inc

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Amazon

The main advantage of trading using opposite GM and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.