Correlation Between Amazon and HEICO

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

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

Diversification Opportunities for Amazon and HEICO

0.58

Correlation Coefficient

Amazon  HEICO

Very weak diversification

The 3 months correlation between Amazon and HEICO is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and HEICO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEICO 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 HEICO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEICO has no effect on the direction of Amazon i.e., Amazon and HEICO go up and down completely randomly.

Pair Corralation between Amazon and HEICO

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.33 times more return on investment than HEICO. However, Amazon is 1.33 times more volatile than HEICO. It trades about 0.1 of its potential returns per unit of risk. HEICO is currently generating about 0.11 per unit of risk. If you would invest  14,589  in Amazon Inc on September 4, 2024 and sell it today you would earn a total of  6,755  from holding Amazon Inc or generate 46.3% return on investment over 90 days.

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

Amazon Inc  vs.  HEICO

Amazon Inc

Risk-Adjusted Performance

13 of 100

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 unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

HEICO

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HEICO are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HEICO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and HEICO

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

The idea behind Amazon Inc and HEICO 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.