Correlation Between Amazon and Irobot Corp

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

Diversification Opportunities for Amazon and Irobot Corp

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Amazon and Irobot is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Irobot Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Irobot Corp 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 Irobot Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Irobot Corp has no effect on the direction of Amazon i.e., Amazon and Irobot Corp go up and down completely randomly.

Pair Corralation between Amazon and Irobot Corp

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Irobot Corp. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.14 times less risky than Irobot Corp. The stock trades about -0.06 of its potential returns per unit of risk. The Irobot Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,252  in Irobot Corp on August 31, 2022 and sell it today you would lose (3,069)  from holding Irobot Corp or give up 37.19% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Irobot Corp

 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

Irobot Corp 
Irobot Performance
0 of 100
Over the last 90 days Irobot Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in December 2022. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Irobot Price Channel

Amazon and Irobot Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Irobot Corp

The main advantage of trading using opposite Amazon and Irobot Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Irobot Corp 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 Irobot Corp will offset losses from the drop in Irobot Corp's long position.
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The idea behind Amazon Inc and Irobot Corp 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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