Correlation Between Amazon and Nike

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

Diversification Opportunities for Amazon and Nike

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between Amazon and Nike is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Amazon i.e., Amazon and Nike go up and down completely randomly.

Pair Corralation between Amazon and Nike

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Nike. In addition to that, Amazon is 1.12 times more volatile than Nike Inc. It trades about -0.03 of its total potential returns per unit of risk. Nike Inc is currently generating about -0.01 per unit of volatility. If you would invest  13,667  in Nike Inc on August 29, 2022 and sell it today you would lose (3,071)  from holding Nike Inc or give up 22.47% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

Amazon Inc  vs.  Nike Inc

 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

Nike Inc 
Nike Performance
0 of 100
Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nike Price Channel

Amazon and Nike Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Nike

The main advantage of trading using opposite Amazon and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.
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The idea behind Amazon Inc and Nike Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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