Correlation Between Amazon and DNA Biomed
Can any of the company-specific risk be diversified away by investing in both Amazon and DNA Biomed 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 DNA Biomed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and DNA Biomed Solns, you can compare the effects of market volatilities on Amazon and DNA Biomed 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 DNA Biomed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and DNA Biomed.
Diversification Opportunities for Amazon and DNA Biomed
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Amazon and DNA is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and DNA Biomed Solns in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DNA Biomed Solns 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 DNA Biomed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DNA Biomed Solns has no effect on the direction of Amazon i.e., Amazon and DNA Biomed go up and down completely randomly.
Pair Corralation between Amazon and DNA Biomed
Given the investment horizon of 90 days Amazon Inc is expected to under-perform the DNA Biomed. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 4.93 times less risky than DNA Biomed. The stock trades about -0.03 of its potential returns per unit of risk. The DNA Biomed Solns is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 7,670 in DNA Biomed Solns on January 26, 2024 and sell it today you would earn a total of 1,070 from holding DNA Biomed Solns or generate 13.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 76.19% |
| Values | Daily Returns |
Amazon Inc vs. DNA Biomed Solns
Performance |
| Timeline |
| Amazon Inc |
| DNA Biomed Solns |
Amazon and DNA Biomed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and DNA Biomed
The main advantage of trading using opposite Amazon and DNA Biomed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, DNA Biomed 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 DNA Biomed will offset losses from the drop in DNA Biomed's long position.The idea behind Amazon Inc and DNA Biomed Solns 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 the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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