Correlation Between Visa and Amazon
Can any of the company-specific risk be diversified away by investing in both Visa and Amazon 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 Visa and Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and Amazon Inc, you can compare the effects of market volatilities on Visa and Amazon 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 Visa with a short position of Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Amazon.
Diversification Opportunities for Visa and Amazon
Weak diversification
The 3 months correlation between Visa and Amazon is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Visa 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 Visa Class A are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Visa i.e., Visa and Amazon go up and down completely randomly.
Pair Corralation between Visa and Amazon
Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.94 times less risky than Amazon. The stock trades about -0.14 of its potential returns per unit of risk. The Amazon Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 17,830 in Amazon Inc on January 26, 2024 and sell it today you would lose (171.00) from holding Amazon Inc or give up 0.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Amazon Inc
Performance |
| Timeline |
| Visa Class A |
| Amazon Inc |
Visa and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Amazon
The main advantage of trading using opposite Visa and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.The idea behind Visa Class A and Amazon Inc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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