Correlation Between Yelp and Meta Platforms
Can any of the company-specific risk be diversified away by investing in both Yelp and Meta Platforms 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 Yelp and Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yelp Inc and Meta Platforms, you can compare the effects of market volatilities on Yelp and Meta Platforms 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 Yelp with a short position of Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and Meta Platforms.
Diversification Opportunities for Yelp and Meta Platforms
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Yelp and Meta is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and Yelp 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 Yelp Inc are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Yelp i.e., Yelp and Meta Platforms go up and down completely randomly.
Pair Corralation between Yelp and Meta Platforms
Given the investment horizon of 90 days Yelp Inc is expected to under-perform the Meta Platforms. But the stock apears to be less risky and, when comparing its historical volatility, Yelp Inc is 1.22 times less risky than Meta Platforms. The stock trades about -0.02 of its potential returns per unit of risk. The Meta Platforms is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 31,561 in Meta Platforms on August 29, 2024 and sell it today you would earn a total of 25,359 from holding Meta Platforms or generate 80.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yelp Inc vs. Meta Platforms
Performance |
| Timeline |
| Yelp Inc |
| Meta Platforms |
Yelp and Meta Platforms Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yelp and Meta Platforms
The main advantage of trading using opposite Yelp and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yelp position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.The idea behind Yelp Inc and Meta Platforms 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.| Meta Platforms vs. Alphabet Inc Class A | Meta Platforms vs. Twilio Inc | Meta Platforms vs. Snap Inc | Meta Platforms vs. Baidu Inc |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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