Correlation Between Amazon CDR and Microsoft Corp

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

Diversification Opportunities for Amazon CDR and Microsoft Corp

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Amazon and Microsoft is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Amazon CDR and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp CDR and Amazon CDR 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 CDR are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp CDR has no effect on the direction of Amazon CDR i.e., Amazon CDR and Microsoft Corp go up and down completely randomly.

Pair Corralation between Amazon CDR and Microsoft Corp

Assuming the 90 days trading horizon Amazon CDR is expected to generate 1.14 times more return on investment than Microsoft Corp. However, Amazon CDR is 1.14 times more volatile than Microsoft Corp CDR. It trades about 0.09 of its potential returns per unit of risk. Microsoft Corp CDR is currently generating about -0.02 per unit of risk. If you would invest  2,052  in Amazon CDR on February 3, 2024 and sell it today you would earn a total of  162.00  from holding Amazon CDR or generate 7.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Amazon CDR  vs.  Microsoft Corp CDR

 Performance 
       Timeline  
Amazon CDR 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Amazon CDR may actually be approaching a critical reversion point that can send shares even higher in June 2024.
Microsoft Corp CDR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Microsoft Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Amazon CDR and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon CDR and Microsoft Corp

The main advantage of trading using opposite Amazon CDR and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon CDR position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
The idea behind Amazon CDR and Microsoft Corp CDR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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