Returns Correlated : Amazon, Alphabet, Microsoft. Who Stand Out?

As we have seen how the performance of S&P 500 in September have been volatile, it seem like this negative performance of the stock markets are driven by mostly tech stocks.

The negative impact of increasing interest rates, slowing growth and reduced IT spending on tech stocks contribute to the performance.

In 2022, with the S&P 500 down 18.1%, the “Magnificent 7” stocks went down -11%.1. In this article, I would be looking at the return relationship of these 3 members of the “Magnificent 7” which share almost similar business model and market share.

I hope that with this data, I can plan how I would diversify my portfolio and plan the trades accordingly.

These 3 stocks will not be spared. But why do they went down together? They are actually competitors in the technology sector.

If you look at the chart below you will notice that all 3 daily returns when plot on a histogram and scatter plot looks pretty similar.

But I would think Alphabet and Microsoft are closer in terms of daily returns. Maybe this is not enough to show us. I shall show more data points to see if this relationship stands, and who actually stands out.

From the chart you will notice that the daily traded volume of GOOG and MSFT are almost similar, whereas we can see that AMZN have a consistent higher volume through the 600 trading days,

Amazon have the highest volume on 29 April 2022, Alphabet have its highest volume on 09 Feb 2023, whereas Microsoft have the highest volume in 26 Jan 2022.

If you look at the highest by date, Alphabet have the most recent one, which mean that interest in Alphabet is increasing.

But when we look at the cumulative daily returns, Alphabet and Microsoft will have their differences, Alphabet perform much better than Microsoft.

But Amazon still have the highest cumulative returns. Though we can see that the returns is coming down, this might be temporary.

Amazon has gained +1.83% on 04 Oct trading. This gain is much better that S&P 500 daily gain of 0.81%. Though Amazon had lost 9.14% over September period, higher than the Retail-Wholesale sector's loss of 7.92% and the S&P 500's loss of 6.19%, investors would be looking forward to its upcoming earnings .

Amazon would be expected to report PS of $0.58, up 190% from the prior-year quarter. Meanwhile, our latest consensus estimate is calling for revenue of $141.89 billion, up 11.64% from the prior-year quarter.

Considering if we have all 3 stocks in our portfolio, it might not be a good idea to assign equal weightage though their gains is almost close to each other.

To maximize our gains, I will add 10% more to Amazon weightage, and Alphabet and Microsoft can remain with same weightage, in this way, we could take advantage of the strong cumulative returns of Amazon and our long term gains should be maximized.

From what I have shared, though these 3 stocks are close in terms of business model, there are still market sentiment and also how the company generate returns back to investors.

It is always useful to monitor and look at the returns in comparison with similar in our portfolio. This way, we should be able to maximize our returns for the long term.

Appreciate if you could share your thoughts in the comment section whether you have these 3 stocks in your portfolio and what could be your weightage for each stock?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.