Correlation Between Amazon and American Equity

Can any of the company-specific risk be diversified away by investing in both Amazon and American Equity 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 Equity 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 Equity Investment, you can compare the effects of market volatilities on Amazon and American Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and American Equity.

Diversification Opportunities for Amazon and American Equity

0.19

Correlation Coefficient

Amazon  American Equity

Average diversification

The 3 months correlation between Amazon and American is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and American Equity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Equity Inve 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Equity Inve has no effect on the direction of Amazon i.e., Amazon and American Equity go up and down completely randomly.

Pair Corralation between Amazon and American Equity

Given the investment horizon of 90 days Amazon is expected to generate 1.06 times less return on investment than American Equity. In addition to that, Amazon is 3.86 times more volatile than American Equity Investment. It trades about 0.04 of its total potential returns per unit of risk. American Equity Investment is currently generating about 0.15 per unit of volatility. If you would invest  5,531  in American Equity Investment on March 7, 2024 and sell it today you would earn a total of  116.00  from holding American Equity Investment or generate 2.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	65.08%
Values	Daily Returns

Amazon Inc  vs.  American Equity Investment

Amazon Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

American Equity Inve

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days American Equity Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, American Equity is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Amazon and American Equity

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

The idea behind Amazon Inc and American Equity Investment 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.