Correlation Between Amazon and Travelers Companies
Can any of the company-specific risk be diversified away by investing in both Amazon and Travelers Companies 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 Travelers Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and The Travelers Companies, you can compare the effects of market volatilities on Amazon and Travelers Companies 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 Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Travelers Companies.
Diversification Opportunities for Amazon and Travelers Companies
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and Travelers is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of Amazon i.e., Amazon and Travelers Companies go up and down completely randomly.
Pair Corralation between Amazon and Travelers Companies
Assuming the 90 days trading horizon Amazon Inc is expected to generate 4.13 times more return on investment than Travelers Companies. However, Amazon is 4.13 times more volatile than The Travelers Companies. It trades about 0.12 of its potential returns per unit of risk. The Travelers Companies is currently generating about -0.16 per unit of risk. If you would invest 299,242 in Amazon Inc on February 6, 2024 and sell it today you would earn a total of 16,669 from holding Amazon Inc or generate 5.57% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 97.44% |
Values | Daily Returns |
Amazon Inc vs. The Travelers Companies
Performance |
Timeline |
Amazon Inc |
The Travelers Companies |
Amazon and Travelers Companies Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Amazon and Travelers Companies
The main advantage of trading using opposite Amazon and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.Amazon vs. Costco Wholesale | Amazon vs. Southwest Airlines | Amazon vs. Hoteles City Express | Amazon vs. Lloyds Banking Group |
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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 the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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