Correlation Between Chewy and Groupon
Can any of the company-specific risk be diversified away by investing in both Chewy and Groupon 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 Chewy and Groupon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chewy Inc and Groupon, you can compare the effects of market volatilities on Chewy and Groupon 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 Chewy with a short position of Groupon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chewy and Groupon.
Diversification Opportunities for Chewy and Groupon
Very good diversification
The 3 months correlation between Chewy and Groupon is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Chewy Inc and Groupon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Groupon and Chewy 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 Chewy Inc are associated (or correlated) with Groupon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Groupon has no effect on the direction of Chewy i.e., Chewy and Groupon go up and down completely randomly.
Pair Corralation between Chewy and Groupon
Given the investment horizon of 90 days Chewy is expected to generate 11.24 times less return on investment than Groupon. But when comparing it to its historical volatility, Chewy Inc is 1.71 times less risky than Groupon. It trades about 0.01 of its potential returns per unit of risk. Groupon is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 572.00 in Groupon on August 31, 2024 and sell it today you would earn a total of 366.00 from holding Groupon or generate 63.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chewy Inc vs. Groupon
Performance |
| Timeline |
| Chewy Inc |
| Groupon |
Chewy and Groupon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chewy and Groupon
The main advantage of trading using opposite Chewy and Groupon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chewy position performs unexpectedly, Groupon 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 Groupon will offset losses from the drop in Groupon's long position.The idea behind Chewy Inc and Groupon 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.Check out your portfolio center.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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