Correlation Between Square and Amazon

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

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

Diversification Opportunities for Square and Amazon

0.78

Correlation Coefficient

Square  Amazon

Poor diversification

The 3 months correlation between Square and Amazon is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Square Inc and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Square 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 Square Inc 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 Square i.e., Square and Amazon go up and down completely randomly.

Pair Corralation between Square and Amazon

Assuming the 90 days horizon Square Inc is expected to generate 2.01 times more return on investment than Amazon. However, Square is 2.01 times more volatile than Amazon Inc. It trades about 0.15 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.17 per unit of risk. If you would invest  4,917  in Square Inc on April 23, 2025 and sell it today you would earn a total of  1,787  from holding Square Inc or generate 36.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Square Inc  vs.  Amazon Inc

Square Inc

Risk-Adjusted Performance

Good

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

Amazon Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Square and Amazon

The main advantage of trading using opposite Square and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Square 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 Square Inc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.