Correlation Between Amazon and American Funds

Can any of the company-specific risk be diversified away by investing in both Amazon and American Funds 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 American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Amazon Inc and American Funds Income, you can compare the effects of market volatilities on Amazon and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and American Funds.

Diversification Opportunities for Amazon and American Funds

0.54

Correlation Coefficient

Amazon  American Funds

Very weak diversification

The 3 months correlation between Amazon and American is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and American Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Me 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Me has no effect on the direction of Amazon i.e., Amazon and American Funds go up and down completely randomly.

Pair Corralation between Amazon and American Funds

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the American Funds. In addition to that, Amazon is 3.46 times more volatile than American Funds Income. It trades about -0.02 of its total potential returns per unit of risk. American Funds Income is currently generating about -0.04 per unit of volatility. If you would invest  1,272  in American Funds Income on January 31, 2024 and sell it today you would lose (9.00) from holding American Funds Income or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  American Funds Income

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

American Funds Me

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Income are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and American Funds

The main advantage of trading using opposite Amazon and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.

The idea behind Amazon Inc and American Funds Income 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.