Correlation Between Amazon and BG Foods

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

Diversification Opportunities for Amazon and BG Foods

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Amazon and BG Foods is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and BG Foods Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods Holdings 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 BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods Holdings has no effect on the direction of Amazon i.e., Amazon and BG Foods go up and down completely randomly.

Pair Corralation between Amazon and BG Foods

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.35 times more return on investment than BG Foods. However, Amazon is 1.35 times more volatile than BG Foods Holdings. It trades about -0.19 of its potential returns per unit of risk. BG Foods Holdings is currently generating about -0.3 per unit of risk. If you would invest  11,096  in Amazon Inc on August 28, 2022 and sell it today you would lose (1,755)  from holding Amazon Inc or give up 15.82% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  BG Foods Holdings

 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 conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

BG Foods Holdings 
BG Foods Performance
0 of 100
Over the last 90 days BG Foods Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in December 2022. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

BG Foods Price Channel

Amazon and BG Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and BG Foods

The main advantage of trading using opposite Amazon and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.
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The idea behind Amazon Inc and BG Foods Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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