Can any of the company-specific risk be diversified away by investing in both Outbrain and Zillow Group 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 Outbrain and Zillow Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Outbrain and Zillow Group Class, you can compare the effects of market volatilities on Outbrain and Zillow Group 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 Outbrain with a short position of Zillow Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Outbrain and Zillow Group.
Diversification Opportunities for Outbrain and Zillow Group
The 3 months correlation between Outbrain and Zillow is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Outbrain and Zillow Group Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group Class and Outbrain 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 Outbrain are associated (or correlated) with Zillow Group. 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 Class has no effect on the direction of Outbrain i.e., Outbrain and Zillow Group go up and down completely randomly.
Pair Corralation between Outbrain and Zillow Group
Allowing for the 90-day total investment horizon Outbrain is expected to generate 1.08 times less return on investment than Zillow Group. In addition to that, Outbrain is 1.24 times more volatile than Zillow Group Class. It trades about 0.03 of its total potential returns per unit of risk. Zillow Group Class is currently generating about 0.05 per unit of volatility. If you would invest 3,510 in Zillow Group Class on September 5, 2023 and sell it today you would earn a total of 891.50 from holding Zillow Group Class or generate 25.4% return on investment over 90 days.
Over the last 90 days Outbrain has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Zillow Group Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the ETF investors.
The main advantage of trading using opposite Outbrain and Zillow Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Outbrain position performs unexpectedly, Zillow Group 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 Group will offset losses from the drop in Zillow Group's long position.
The idea behind Outbrain and Zillow Group Class 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
Find global opportunities by holding instruments from different markets
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions