Correlation Between HomeServe PLC and Amazon

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

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

Diversification Opportunities for HomeServe PLC and Amazon

-0.15

Correlation Coefficient

HomeServe PLC  Amazon

Good diversification

The 12 months correlation between HomeServe and Amazon is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding HomeServe PLC and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and HomeServe PLC 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 HomeServe PLC are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of HomeServe PLC i.e., HomeServe PLC and Amazon go up and down completely randomly.

Pair Corralation between HomeServe PLC and Amazon

Assuming the 90 days horizon HomeServe PLC is expected to generate 0.79 times more return on investment than Amazon. However, HomeServe PLC is 1.27 times less risky than Amazon. It trades about 0.06 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.04 per unit of risk. If you would invest  1,245  in HomeServe PLC on January 24, 2024 and sell it today you would earn a total of  225.00  from holding HomeServe PLC or generate 18.07% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	34.82%
Values	Daily Returns

HomeServe PLC  vs.  Amazon Inc

HomeServe PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeServe PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, HomeServe PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Amazon Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HomeServe PLC and Amazon

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

The idea behind HomeServe PLC and Amazon Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.