Correlation Between Amazon and Dairy Farm

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

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

Diversification Opportunities for Amazon and Dairy Farm

-0.28

Correlation Coefficient

Amazon  Dairy Farm

Very good diversification

The 3 months correlation between Amazon and Dairy is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and Amazon 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 Amazon Inc are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Amazon i.e., Amazon and Dairy Farm go up and down completely randomly.

Pair Corralation between Amazon and Dairy Farm

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.68 times more return on investment than Dairy Farm. However, Amazon Inc is 1.48 times less risky than Dairy Farm. It trades about 0.06 of its potential returns per unit of risk. Dairy Farm International is currently generating about 0.0 per unit of risk. If you would invest  10,537  in Amazon Inc on January 31, 2024 and sell it today you would earn a total of  7,559  from holding Amazon Inc or generate 71.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.31%
Values	Daily Returns

Amazon Inc  vs.  Dairy Farm International

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

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

Dairy Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dairy Farm International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Amazon and Dairy Farm

The main advantage of trading using opposite Amazon and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Dairy Farm 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 Dairy Farm will offset losses from the drop in Dairy Farm's long position.

The idea behind Amazon Inc and Dairy Farm International 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.