Correlation Between Amazon and BJs Wholesale

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

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

Diversification Opportunities for Amazon and BJs Wholesale

0.84

Correlation Coefficient

Amazon  BJs Wholesale

Very poor diversification

The 3 months correlation between Amazon and BJs is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and BJs Wholesale Club in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Wholesale Club 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 BJs Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Wholesale Club has no effect on the direction of Amazon i.e., Amazon and BJs Wholesale go up and down completely randomly.

Pair Corralation between Amazon and BJs Wholesale

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.12 times more return on investment than BJs Wholesale. However, Amazon is 1.12 times more volatile than BJs Wholesale Club. It trades about 0.13 of its potential returns per unit of risk. BJs Wholesale Club is currently generating about -0.01 per unit of risk. If you would invest  10,257  in Amazon Inc on January 20, 2024 and sell it today you would earn a total of  7,665  from holding Amazon Inc or generate 74.73% return on investment over 90 days.

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

Amazon Inc  vs.  BJs Wholesale Club

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

BJs Wholesale Club

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward-looking indicators, BJs Wholesale may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Amazon and BJs Wholesale

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

The idea behind Amazon Inc and BJs Wholesale Club 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.