Correlation Between Amazon and Digital Media

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

Diversification Opportunities for Amazon and Digital Media

0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Amazon and Digital is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Digital Media Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Media Solutions 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 Digital Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Media Solutions has no effect on the direction of Amazon i.e., Amazon and Digital Media go up and down completely randomly.

Pair Corralation between Amazon and Digital Media

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.34 times more return on investment than Digital Media. However, Amazon Inc is 2.9 times less risky than Digital Media. It trades about -0.03 of its potential returns per unit of risk. Digital Media Solutions is currently generating about -0.02 per unit of risk. If you would invest  15,582  in Amazon Inc on September 2, 2022 and sell it today you would lose (6,032)  from holding Amazon Inc or give up 38.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Digital Media Solutions

 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

Digital Media Solutions 
Digital Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Digital Media Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Digital Media reported solid returns over the last few months and may actually be approaching a breakup point.

Digital Price Channel

Amazon and Digital Media Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Digital Media

The main advantage of trading using opposite Amazon and Digital Media positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Digital Media 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 Digital Media will offset losses from the drop in Digital Media's long position.
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The idea behind Amazon Inc and Digital Media Solutions 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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