Correlation Between Amazon and Adobe Systems

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

Diversification Opportunities for Amazon and Adobe Systems

0.21
  Correlation Coefficient

Modest diversification

The 3 months correlation between Amazon and Adobe is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems Incorp 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems Incorp has no effect on the direction of Amazon i.e., Amazon and Adobe Systems go up and down completely randomly.

Pair Corralation between Amazon and Adobe Systems

Given the investment horizon of 90 days Amazon is expected to generate 4.18 times less return on investment than Adobe Systems. In addition to that, Amazon is 1.09 times more volatile than Adobe Systems Incorporated. It trades about 0.06 of its total potential returns per unit of risk. Adobe Systems Incorporated is currently generating about 0.29 per unit of volatility. If you would invest  28,575  in Adobe Systems Incorporated on September 5, 2022 and sell it today you would earn a total of  5,578  from holding Adobe Systems Incorporated or generate 19.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Adobe Systems Incorporated

 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

Adobe Systems Incorp 
Adobe Performance
0 of 100
Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Adobe Systems is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Adobe Price Channel

Amazon and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Adobe Systems

The main advantage of trading using opposite Amazon and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Adobe Systems 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 Adobe Systems will offset losses from the drop in Adobe Systems' long position.
Amazon vs. Carvana Co
The idea behind Amazon Inc and Adobe Systems Incorporated 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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