Correlation Between Lindsell Train and Amazon

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

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

Diversification Opportunities for Lindsell Train and Amazon

0.37

Correlation Coefficient

Lindsell Train  Amazon

Weak diversification

The 3 months correlation between Lindsell and Amazon is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Lindsell Train Investment and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Lindsell Train 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 Lindsell Train Investment 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 Lindsell Train i.e., Lindsell Train and Amazon go up and down completely randomly.

Pair Corralation between Lindsell Train and Amazon

Assuming the 90 days trading horizon Lindsell Train is expected to generate 3.17 times less return on investment than Amazon. But when comparing it to its historical volatility, Lindsell Train Investment is 1.32 times less risky than Amazon. It trades about 0.07 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  18,175  in Amazon Inc on October 6, 2024 and sell it today you would earn a total of  4,175  from holding Amazon Inc or generate 22.97% return on investment over 90 days.

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

Lindsell Train Investment  vs.  Amazon Inc

Lindsell Train Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Lindsell Train may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Amazon Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lindsell Train and Amazon

The main advantage of trading using opposite Lindsell Train and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lindsell Train 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 Lindsell Train Investment 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.