Correlation Between Amazon and Applied Finance

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

By analyzing existing cross correlation between Amazon Inc and Applied Finance Explorer, you can compare the effects of market volatilities on Amazon and Applied Finance 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 Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Applied Finance.

Diversification Opportunities for Amazon and Applied Finance

0.85

Correlation Coefficient

Amazon  Applied Finance

Very poor diversification

The 3 months correlation between Amazon and Applied is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer 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 Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Amazon i.e., Amazon and Applied Finance go up and down completely randomly.

Pair Corralation between Amazon and Applied Finance

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.61 times more return on investment than Applied Finance. However, Amazon is 1.61 times more volatile than Applied Finance Explorer. It trades about 0.17 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.16 per unit of risk. If you would invest  17,100  in Amazon Inc on April 4, 2025 and sell it today you would earn a total of  4,892  from holding Amazon Inc or generate 28.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Amazon Inc  vs.  Applied Finance Explorer

Amazon Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Applied Finance Explorer

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Explorer are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Applied Finance showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Applied Finance

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

The idea behind Amazon Inc and Applied Finance Explorer 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.