Correlation Between Treasury Wine and Amazon

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

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

Diversification Opportunities for Treasury Wine and Amazon

-0.21

Correlation Coefficient

Treasury Wine  Amazon

Very good diversification

The 3 months correlation between Treasury and Amazon is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Treasury Wine 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 Treasury Wine Estates 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 Treasury Wine i.e., Treasury Wine and Amazon go up and down completely randomly.

Pair Corralation between Treasury Wine and Amazon

Assuming the 90 days horizon Treasury Wine is expected to generate 2.02 times less return on investment than Amazon. In addition to that, Treasury Wine is 1.2 times more volatile than Amazon Inc. It trades about 0.19 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.46 per unit of volatility. If you would invest  19,092  in Amazon Inc on September 16, 2024 and sell it today you would earn a total of  2,608  from holding Amazon Inc or generate 13.66% return on investment over 90 days.

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

Treasury Wine Estates  vs.  Amazon Inc

Treasury Wine Estates

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Treasury Wine Estates are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Treasury Wine is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Amazon Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Treasury Wine and Amazon

The main advantage of trading using opposite Treasury Wine and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treasury Wine 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 Treasury Wine Estates 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.