Correlation Between Yelp and Prosus

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

By analyzing existing cross correlation between Yelp Inc and Prosus, you can compare the effects of market volatilities on Yelp and Prosus 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 Prosus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and Prosus.

Diversification Opportunities for Yelp and Prosus

0.27

Correlation Coefficient

Yelp  Prosus

Modest diversification

The 3 months correlation between Yelp and Prosus is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and Prosus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus 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 Prosus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus has no effect on the direction of Yelp i.e., Yelp and Prosus go up and down completely randomly.

Pair Corralation between Yelp and Prosus

Given the investment horizon of 90 days Yelp is expected to generate 2.06 times less return on investment than Prosus. But when comparing it to its historical volatility, Yelp Inc is 2.86 times less risky than Prosus. It trades about 0.02 of its potential returns per unit of risk. Prosus is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,851  in Prosus on January 24, 2024 and sell it today you would lose (1,761) from holding Prosus or give up 36.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Yelp Inc  vs.  Prosus

Yelp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yelp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Prosus

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Prosus is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Yelp and Prosus

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

The idea behind Yelp Inc and Prosus 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.