Correlation Between Yelp and Zillow
Can any of the company-specific risk be diversified away by investing in both Yelp and Zillow 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 Zillow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yelp Inc and Zillow Group, you can compare the effects of market volatilities on Yelp and Zillow 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 Zillow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and Zillow.
Diversification Opportunities for Yelp and Zillow
Poor diversification
The 3 months correlation between Yelp and Zillow is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and Zillow Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group 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 Zillow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group has no effect on the direction of Yelp i.e., Yelp and Zillow go up and down completely randomly.
Pair Corralation between Yelp and Zillow
Given the investment horizon of 90 days Yelp is expected to generate 4.97 times less return on investment than Zillow. But when comparing it to its historical volatility, Yelp Inc is 3.05 times less risky than Zillow. It trades about 0.18 of its potential returns per unit of risk. Zillow Group is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 5,759 in Zillow Group on August 26, 2024 and sell it today you would earn a total of 2,320 from holding Zillow Group or generate 40.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yelp Inc vs. Zillow Group
Performance |
| Timeline |
| Yelp Inc |
| Zillow Group |
Yelp and Zillow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yelp and Zillow
The main advantage of trading using opposite Yelp and Zillow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yelp position performs unexpectedly, Zillow 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 Zillow will offset losses from the drop in Zillow's long position.The idea behind Yelp Inc and Zillow Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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