Correlation Between Amazon and National Cinemedia

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

Diversification Opportunities for Amazon and National Cinemedia

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Amazon and National is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and National Cinemedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Cinemedia 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 National Cinemedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Cinemedia has no effect on the direction of Amazon i.e., Amazon and National Cinemedia go up and down completely randomly.

Pair Corralation between Amazon and National Cinemedia

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.52 times more return on investment than National Cinemedia. However, Amazon Inc is 1.93 times less risky than National Cinemedia. It trades about -0.06 of its potential returns per unit of risk. National Cinemedia is currently generating about -0.13 per unit of risk. If you would invest  14,790  in Amazon Inc on August 30, 2022 and sell it today you would lose (5,342)  from holding Amazon Inc or give up 36.12% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  National Cinemedia

 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

National Cinemedia 
National Performance
0 of 100
Over the last 90 days National Cinemedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in December 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

National Price Channel

Amazon and National Cinemedia Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and National Cinemedia

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

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