While Amazon’s (NASDAQ:AMZN) market cap has been hovering under the $1 trillion mark in recent months, the stock has seen significant volatility on account of mixed quarterly results. So how resilient is the stock to large swings – specifically if Amazon sees a single day drop of -3% or more, what are the chances it’ll spring back within a week? What about a steeper drop of say 5%?
Based on the Trefis AI engine there is a pretty meaningful, 9% chance that Amazon stock could see a single day drop of 3% or more. This is countered by a solid 33% chance that the stock will, in fact, bounce back from such a drop in the subsequent week. Take this to the next extreme of 5% or greater single-day drop, and the chances that Amazon will bounce back in the subsequent week are still pretty strong 27%.
What about the possibility of a rebound from an even more extreme 10% or greater drop? Try out the Trefis Machine Learning Engine to test chances of a rebound or a drop after fall for Amazon’s stock, You can test the chance of recovery over different time intervals of a quarter, month, or even just a day!
Below, we also discuss a few scenarios and answer common investor questions:
Question 1: Does a rise in Amazon stock become more likely after a drop?
Answer:
Consider two situations,
Case 1: Amazon stock drops by 5% or more in a week
Case 2: Amazon stock rises by 5% or more in a week
Is the chance of say a 5% rise in Amazon stock over the subsequent month after Case 1 or Case 2 occurs higher for one versus the other? Yes. The chances of a 5% rise over the next month (21 trading days) is about 43% for Case 1, i.e. when Amazon’s stock has just suffered a loss, versus about 37% for Case 2, when the stock has just gained.
Question 2: What about the other way around, does a drop in Amazon stock become more likely after a rise?
Answer:
Consider, once again, two cases
Case 1: Amazon stock drops by 5% in a week
Case 2: Amazon stock rises by 5% in a week
The chance of a 5% drop after Case 1 is about 32%, versus about 30% for Case 2. For comparison, for the S&P 500 and for many other stocks, it turns out the chances of a 5% drop after Case 1 or Case 2 has occurred are also quite similar. Test this out in our Machine Learning Analysis of the S&P 500
Question 3: Does patience pay?
Answer:
If you buy and hold Amazon stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For after a drop of 5% in Amazon stock over a week (5 trading days), while there is only about 43% chance the stock will gain 5% over the subsequent week, there is more than 46% chance this will happen in 3 months, and 62% chance it’ll gain 5% over a year (about 250 trading days).
The table below shows the trend for Amazon stock:
Question 4: What about the possibility of a drop after a rise if you wait for a while?
Answer:
There are two opposing forces at work on Amazon stock here. First, is the general positive bias for Amazon stock (and for most other stocks) – that pulls the stock upwards with time. Second, the basic chance of a drop, as a chance of any event happening, should simply increase with the passage of time.
After seeing a rise of 5% over 5 days, the chances of a 5% drop in Amazon stock are about 30% over the subsequent month of waiting (21 trading days) and this increases to 34% when the waiting period is a quarter (63 trading days). This figure shrinks to 26% if you want a year (252 trading days) though.
Related analysis:
- Trefis AI Engine for Apple Stock: Chances for Rebound after a Fall, or, the chance of a Dip after a Rise
- Microsoft Stock Is Up 60% Over The Last Year, Is It Time To Sell?
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
