Correlation Between Amazon and First Citizens

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

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

Diversification Opportunities for Amazon and First Citizens

0.81

Correlation Coefficient

Amazon  First Citizens

Very poor diversification

The 3 months correlation between Amazon and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares 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 First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of Amazon i.e., Amazon and First Citizens go up and down completely randomly.

Pair Corralation between Amazon and First Citizens

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the First Citizens. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.08 times less risky than First Citizens. The stock trades about -0.03 of its potential returns per unit of risk. The First Citizens BancShares is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  159,975  in First Citizens BancShares on January 26, 2024 and sell it today you would earn a total of  3,988  from holding First Citizens BancShares or generate 2.49% 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.  First Citizens BancShares

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.

First Citizens BancShares

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental indicators, First Citizens may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Amazon and First Citizens

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

The idea behind Amazon Inc and First Citizens BancShares 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.