Correlation Between Amazon and Agilent Technologies

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

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

Diversification Opportunities for Amazon and Agilent Technologies

0.64

Correlation Coefficient

Amazon  Agilent Technologies

Poor diversification

The 3 months correlation between Amazon and Agilent is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies 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 Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of Amazon i.e., Amazon and Agilent Technologies go up and down completely randomly.

Pair Corralation between Amazon and Agilent Technologies

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.76 times more return on investment than Agilent Technologies. However, Amazon Inc is 1.31 times less risky than Agilent Technologies. It trades about -0.06 of its potential returns per unit of risk. Agilent Technologies is currently generating about -0.14 per unit of risk. If you would invest  17,971  in Amazon Inc on January 25, 2024 and sell it today you would lose (312.00) from holding Amazon Inc or give up 1.74% of portfolio value over 90 days.

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

Amazon Inc  vs.  Agilent Technologies

Amazon Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Agilent Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Agilent Technologies may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Amazon and Agilent Technologies

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

The idea behind Amazon Inc and Agilent Technologies 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.