Correlation Between Amazon and Rolls Royce

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

Diversification Opportunities for Amazon and Rolls Royce

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Amazon and Rolls is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Rolls Royce Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Grp 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Grp has no effect on the direction of Amazon i.e., Amazon and Rolls Royce go up and down completely randomly.

Pair Corralation between Amazon and Rolls Royce

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.27 times less risky than Rolls Royce. The stock trades about -0.03 of its potential returns per unit of risk. The Rolls Royce Grp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  155.00  in Rolls Royce Grp on August 29, 2022 and sell it today you would lose (46.00)  from holding Rolls Royce Grp or give up 29.68% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Rolls Royce Grp

 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

Rolls Royce Grp 
Rolls Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Grp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Rolls Royce showed solid returns over the last few months and may actually be approaching a breakup point.

Rolls Price Channel

Amazon and Rolls Royce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Rolls Royce

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

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