Correlation Between Etsy and EBay

Can any of the company-specific risk be diversified away by investing in both Etsy and EBay 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 Etsy and EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Etsy Inc and eBay Inc, you can compare the effects of market volatilities on Etsy and EBay 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 Etsy with a short position of EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Etsy and EBay.

Diversification Opportunities for Etsy and EBay

-0.68

Correlation Coefficient

Etsy  EBay

Excellent diversification

The 3 months correlation between Etsy and EBay is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc and Etsy 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 Etsy Inc are associated (or correlated) with EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Etsy i.e., Etsy and EBay go up and down completely randomly.

Pair Corralation between Etsy and EBay

Given the investment horizon of 90 days Etsy Inc is expected to generate 1.72 times more return on investment than EBay. However, Etsy is 1.72 times more volatile than eBay Inc. It trades about 0.04 of its potential returns per unit of risk. eBay Inc is currently generating about -0.02 per unit of risk. If you would invest  6,575  in Etsy Inc on January 24, 2024 and sell it today you would earn a total of  70.00  from holding Etsy Inc or generate 1.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Etsy Inc  vs.  eBay Inc

Etsy Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

eBay Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, EBay showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Etsy and EBay

The main advantage of trading using opposite Etsy and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.

The idea behind Etsy Inc and eBay 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.