Correlation Between Amazon and Forum Energy

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

Diversification Opportunities for Amazon and Forum Energy

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Amazon and Forum is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Forum Energy Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Technologies 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 Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Technologies has no effect on the direction of Amazon i.e., Amazon and Forum Energy go up and down completely randomly.

Pair Corralation between Amazon and Forum Energy

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Forum Energy. In addition to that, Amazon is 2.16 times more volatile than Forum Energy Technologies. It trades about -0.19 of its total potential returns per unit of risk. Forum Energy Technologies is currently generating about 0.25 per unit of volatility. If you would invest  2,686  in Forum Energy Technologies on August 28, 2022 and sell it today you would earn a total of  266.00  from holding Forum Energy Technologies or generate 9.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Amazon Inc  vs.  Forum Energy Technologies

 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

Forum Energy Technologies 
Forum Performance
0 of 100
Over the last 90 days Forum Energy Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Forum Energy is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Forum Price Channel

Amazon and Forum Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Forum Energy

The main advantage of trading using opposite Amazon and Forum Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Forum Energy 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 Forum Energy will offset losses from the drop in Forum Energy's long position.
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The idea behind Amazon Inc and Forum Energy Technologies 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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