Correlation Between Amazon and AeroVironment

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

Diversification Opportunities for Amazon and AeroVironment

0.05
  Correlation Coefficient

Significant diversification

The 3 months correlation between Amazon and AeroVironment is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Amazon i.e., Amazon and AeroVironment go up and down completely randomly.

Pair Corralation between Amazon and AeroVironment

Given the investment horizon of 90 days Amazon is expected to generate 2.59 times less return on investment than AeroVironment. But when comparing it to its historical volatility, Amazon Inc is 1.07 times less risky than AeroVironment. It trades about 0.04 of its potential returns per unit of risk. AeroVironment is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,617  in AeroVironment on September 3, 2022 and sell it today you would earn a total of  651.00  from holding AeroVironment or generate 7.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  AeroVironment

 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

AeroVironment 
AeroVironment Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, AeroVironment may actually be approaching a critical reversion point that can send shares even higher in January 2023.

AeroVironment Price Channel

Amazon and AeroVironment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and AeroVironment

The main advantage of trading using opposite Amazon and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, AeroVironment 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 AeroVironment will offset losses from the drop in AeroVironment's long position.
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The idea behind Amazon Inc and AeroVironment 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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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