Correlation Between Amazon and Alamo

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

Diversification Opportunities for Amazon and Alamo

-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Amazon and Alamo is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group 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 Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of Amazon i.e., Amazon and Alamo go up and down completely randomly.

Pair Corralation between Amazon and Alamo

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.75 times more return on investment than Alamo. However, Amazon is 1.75 times more volatile than Alamo Group. It trades about 0.0 of its potential returns per unit of risk. Alamo Group is currently generating about -0.03 per unit of risk. If you would invest  9,679  in Amazon Inc on September 2, 2022 and sell it today you would lose (129.00)  from holding Amazon Inc or give up 1.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Alamo Group

 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 inconsistent 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

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

Alamo Price Channel

Amazon and Alamo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Alamo

The main advantage of trading using opposite Amazon and Alamo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Alamo 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 Alamo will offset losses from the drop in Alamo's long position.
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The idea behind Amazon Inc and Alamo Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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