Correlation Between Amazon and General Electric

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Can any of the company-specific risk be diversified away by investing in both Amazon and General Electric 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 General Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and General Electric, you can compare the effects of market volatilities on Amazon and General Electric 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 General Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and General Electric.

Diversification Opportunities for Amazon and General Electric

-0.71
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Amazon and General is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Amazon i.e., Amazon and General Electric go up and down completely randomly.

Pair Corralation between Amazon and General Electric

Given the investment horizon of 90 days Amazon is expected to generate 3.56 times less return on investment than General Electric. In addition to that, Amazon is 2.16 times more volatile than General Electric. It trades about 0.04 of its total potential returns per unit of risk. General Electric is currently generating about 0.34 per unit of volatility. If you would invest  7,740  in General Electric on September 3, 2022 and sell it today you would earn a total of  948.00  from holding General Electric or generate 12.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  General Electric

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

General Electric 
General Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Price Channel

Amazon and General Electric Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and General Electric

The main advantage of trading using opposite Amazon and General Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, General Electric 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 General Electric will offset losses from the drop in General Electric's long position.
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The idea behind Amazon Inc and General Electric 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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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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