Correlation Between TrueCar and Yelp
Can any of the company-specific risk be diversified away by investing in both TrueCar and Yelp 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 TrueCar and Yelp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TrueCar and Yelp Inc, you can compare the effects of market volatilities on TrueCar and Yelp 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 TrueCar with a short position of Yelp. Check out your portfolio center. Please also check ongoing floating volatility patterns of TrueCar and Yelp.
Diversification Opportunities for TrueCar and Yelp
Very good diversification
The 3 months correlation between TrueCar and Yelp is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding TrueCar and Yelp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yelp Inc and TrueCar 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 TrueCar are associated (or correlated) with Yelp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yelp Inc has no effect on the direction of TrueCar i.e., TrueCar and Yelp go up and down completely randomly.
Pair Corralation between TrueCar and Yelp
Given the investment horizon of 90 days TrueCar is expected to generate 1.95 times more return on investment than Yelp. However, TrueCar is 1.95 times more volatile than Yelp Inc. It trades about 0.03 of its potential returns per unit of risk. Yelp Inc is currently generating about 0.04 per unit of risk. If you would invest 300.00 in TrueCar on November 5, 2024 and sell it today you would earn a total of 44.00 from holding TrueCar or generate 14.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
TrueCar vs. Yelp Inc
Performance |
| Timeline |
| TrueCar |
| Yelp Inc |
TrueCar and Yelp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TrueCar and Yelp
The main advantage of trading using opposite TrueCar and Yelp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TrueCar position performs unexpectedly, Yelp 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 Yelp will offset losses from the drop in Yelp's long position.The idea behind TrueCar and Yelp 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.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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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