Correlation Between Amazon and Emergent Biosolutions

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

Diversification Opportunities for Amazon and Emergent Biosolutions

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Amazon and Emergent is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Emergent Biosolutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emergent Biosolutions 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 Emergent Biosolutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emergent Biosolutions has no effect on the direction of Amazon i.e., Amazon and Emergent Biosolutions go up and down completely randomly.

Pair Corralation between Amazon and Emergent Biosolutions

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.38 times more return on investment than Emergent Biosolutions. However, Amazon Inc is 2.62 times less risky than Emergent Biosolutions. It trades about 0.01 of its potential returns per unit of risk. Emergent Biosolutions is currently generating about -0.21 per unit of risk. If you would invest  9,679  in Amazon Inc on September 2, 2022 and sell it today you would lose (25.00)  from holding Amazon Inc or give up 0.26% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Emergent Biosolutions

 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

Emergent Biosolutions 
Emergent Performance
0 of 100
Over the last 90 days Emergent Biosolutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2023. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Emergent Price Channel

Amazon and Emergent Biosolutions Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Emergent Biosolutions

The main advantage of trading using opposite Amazon and Emergent Biosolutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Emergent Biosolutions 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 Emergent Biosolutions will offset losses from the drop in Emergent Biosolutions' long position.
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The idea behind Amazon Inc and Emergent Biosolutions 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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