Correlation Between Amazon and EBay

By analyzing existing cross correlation between Amazon Inc and EBay Inc, you can compare the effects of market volatilities on Amazon and EBay 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 EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and EBay.

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Can any of the company-specific risk be diversified away by investing in both Amazon and EBay 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 EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Amazon and EBay

0.29
  Correlation Coefficient
Amazon Inc
EBay Inc

Modest diversification

The 499' months correlation between Amazon and EBay is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and EBay Inc in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on EBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBay Inc has no effect on the direction of Amazon i.e., Amazon and EBay go up and down completely randomly.

Pair Corralation between Amazon and EBay

Given the investment horizon of 90 days Amazon is expected to generate 3.19 times less return on investment than EBay. But when comparing it to its historical volatility, Amazon Inc is 1.24 times less risky than EBay. It trades about 0.02 of its potential returns per unit of risk. EBay Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,878  in EBay Inc on June 18, 2021 and sell it today you would earn a total of  1,592  from holding EBay Inc or generate 27.08% return on investment over 90 days.
Time Period499' Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  EBay Inc

 Performance (%) 
      Timeline 
Amazon Inc 
 Amazon Performance
26 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Amazon disclosed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Price Channel

EBay Inc 
 EBay Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in EBay Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, EBay may actually be approaching a critical reversion point that can send shares even higher in October 2021.

EBay Price Channel

Amazon and EBay Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Amazon and EBay

The main advantage of trading using opposite Amazon and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.
The idea behind Amazon Inc and EBay Inc 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.
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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