Correlation Between Amazon and Verizon Communications

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

Diversification Opportunities for Amazon and Verizon Communications

-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Amazon and Verizon is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Amazon i.e., Amazon and Verizon Communications go up and down completely randomly.

Pair Corralation between Amazon and Verizon Communications

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.73 times more return on investment than Verizon Communications. However, Amazon is 1.73 times more volatile than Verizon Communications. It trades about 0.35 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.29 per unit of risk. If you would invest  11,355  in Amazon Inc on May 16, 2022 and sell it today you would earn a total of  3,000  from holding Amazon Inc or generate 26.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Verizon Communications

 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

Verizon Communications 
Verizon Performance
0 of 100
Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Verizon Price Channel

Amazon and Verizon Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Verizon Communications

The main advantage of trading using opposite Amazon and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.
The idea behind Amazon Inc and Verizon Communications 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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