Correlation Between Amazon and International Business

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

Diversification Opportunities for Amazon and International Business

-0.23
  Correlation Coefficient

Very good diversification

The 3 months correlation between Amazon and International is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Amazon i.e., Amazon and International Business go up and down completely randomly.

Pair Corralation between Amazon and International Business

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.24 times more return on investment than International Business. However, Amazon is 2.24 times more volatile than International Business Machines. It trades about 0.37 of its potential returns per unit of risk. International Business Machines is currently generating about -0.07 per unit of risk. If you would invest  11,063  in Amazon Inc on May 15, 2022 and sell it today you would earn a total of  3,292  from holding Amazon Inc or generate 29.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  International Business Machine

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Amazon disclosed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Price Channel

International Business 
International Performance
0 of 100
Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental drivers, International Business is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

International Price Channel

Amazon and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and International Business

The main advantage of trading using opposite Amazon and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.
The idea behind Amazon Inc and International Business Machines 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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