Correlation Between Visa and Amazon

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

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

Diversification Opportunities for Visa and Amazon

0.89

Correlation Coefficient

Visa  Amazon

Very poor diversification

The 3 months correlation between Visa and Amazon is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Visa 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 Visa Class A 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 Visa i.e., Visa and Amazon go up and down completely randomly.

Pair Corralation between Visa and Amazon

Taking into account the 90-day investment horizon Visa is expected to generate 13.99 times less return on investment than Amazon. But when comparing it to its historical volatility, Visa Class A is 2.05 times less risky than Amazon. It trades about 0.03 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  19,346  in Amazon Inc on October 10, 2024 and sell it today you would earn a total of  2,244  from holding Amazon Inc or generate 11.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Visa Class A  vs.  Amazon Inc

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Amazon Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 19 (%) 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 Visa and Amazon

The main advantage of trading using opposite Visa and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.