Correlation Between Yelp and TrueCar
Can any of the company-specific risk be diversified away by investing in both Yelp and TrueCar 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 TrueCar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yelp Inc and TrueCar, you can compare the effects of market volatilities on Yelp and TrueCar 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 TrueCar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and TrueCar.
Diversification Opportunities for Yelp and TrueCar
Pay attention - limited upside
The 3 months correlation between Yelp and TrueCar is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and TrueCar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TrueCar 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 TrueCar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TrueCar has no effect on the direction of Yelp i.e., Yelp and TrueCar go up and down completely randomly.
Pair Corralation between Yelp and TrueCar
Given the investment horizon of 90 days Yelp Inc is expected to generate 0.5 times more return on investment than TrueCar. However, Yelp Inc is 2.0 times less risky than TrueCar. It trades about 0.04 of its potential returns per unit of risk. TrueCar is currently generating about 0.0 per unit of risk. If you would invest 3,653 in Yelp Inc on October 26, 2024 and sell it today you would earn a total of 248.00 from holding Yelp Inc or generate 6.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yelp Inc vs. TrueCar
Performance |
| Timeline |
| Yelp Inc |
| TrueCar |
Yelp and TrueCar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yelp and TrueCar
The main advantage of trading using opposite Yelp and TrueCar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yelp position performs unexpectedly, TrueCar 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 TrueCar will offset losses from the drop in TrueCar's long position.The idea behind Yelp Inc and TrueCar 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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