Correlation Between Amazon and Farfetch

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

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

Diversification Opportunities for Amazon and Farfetch

0.55
  Correlation Coefficient
Amazon Inc
Farfetch Ltd Cl

Very weak diversification

The 3 months correlation between Amazon and Farfetch is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Farfetch Ltd Cl in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Farfetch Ltd Cl 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 Farfetch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farfetch Ltd Cl has no effect on the direction of Amazon i.e., Amazon and Farfetch go up and down completely randomly.

Pair Corralation between Amazon and Farfetch

Given the investment horizon of 90 days Amazon is expected to generate 2.0 times less return on investment than Farfetch. But when comparing it to its historical volatility, Amazon Inc is 2.14 times less risky than Farfetch. It trades about 0.07 of its potential returns per unit of risk. Farfetch Ltd Cl is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,158  in Farfetch Ltd Cl on October 19, 2021 and sell it today you would earn a total of  1,562  from holding Farfetch Ltd Cl or generate 134.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Farfetch Ltd Cl

 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 quite persistent basic indicators, Amazon is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Amazon Price Channel

Farfetch Ltd Cl 
Farfetch Performance
0 of 100
Over the last 90 days Farfetch Ltd Cl 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 fundamental indicators remain nearly stable which may send shares a bit higher in February 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Farfetch Price Channel

Amazon and Farfetch Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Amazon and Farfetch

The main advantage of trading using opposite Amazon and Farfetch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Farfetch 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 Farfetch will offset losses from the drop in Farfetch's long position.
The idea behind Amazon Inc and Farfetch Ltd Cl 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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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