Can any of the company-specific risk be diversified away by investing in both Zillow Group and Arena 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 Zillow Group and Arena Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zillow Group Class and Arena Group Holdings, you can compare the effects of market volatilities on Zillow Group and Arena 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 Zillow Group with a short position of Arena Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zillow Group and Arena Group.
Diversification Opportunities for Zillow Group and Arena Group
The 3 months correlation between Zillow and Arena is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Zillow Group Class and Arena Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arena Group Holdings and Zillow Group 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 Zillow Group Class are associated (or correlated) with Arena Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arena Group Holdings has no effect on the direction of Zillow Group i.e., Zillow Group and Arena Group go up and down completely randomly.
Pair Corralation between Zillow Group and Arena Group
Taking into account the 90-day investment horizon Zillow Group Class is expected to generate 0.57 times more return on investment than Arena Group. However, Zillow Group Class is 1.74 times less risky than Arena Group. It trades about 0.0 of its potential returns per unit of risk. Arena Group Holdings is currently generating about -0.03 per unit of risk. If you would invest 5,952 in Zillow Group Class on September 2, 2023 and sell it today you would lose (1,858) from holding Zillow Group Class or give up 31.22% of portfolio value over 90 days.
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 unfluctuating 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.
Over the last 90 days Arena Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2024. The recent disarray may also be a sign of long period up-swing for the firm insiders.
The main advantage of trading using opposite Zillow Group and Arena Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zillow Group position performs unexpectedly, Arena 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 Arena Group will offset losses from the drop in Arena Group's long position.
The idea behind Zillow Group Class and Arena Group Holdings 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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