Can any of the company-specific risk be diversified away by investing in both Zillow Group and Outbrain 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 Outbrain 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 Outbrain, you can compare the effects of market volatilities on Zillow Group and Outbrain 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 Outbrain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zillow Group and Outbrain.
Diversification Opportunities for Zillow Group and Outbrain
The 3 months correlation between Zillow and Outbrain is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Zillow Group Class and Outbrain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outbrain 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 Outbrain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outbrain has no effect on the direction of Zillow Group i.e., Zillow Group and Outbrain go up and down completely randomly.
Pair Corralation between Zillow Group and Outbrain
Taking into account the 90-day investment horizon Zillow Group Class is expected to generate 1.46 times more return on investment than Outbrain. However, Zillow Group is 1.46 times more volatile than Outbrain. It trades about 0.3 of its potential returns per unit of risk. Outbrain is currently generating about 0.14 per unit of risk. If you would invest 3,778 in Zillow Group Class on September 9, 2023 and sell it today you would earn a total of 895.00 from holding Zillow Group Class or generate 23.69% return on investment 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 fairly strong basic indicators, Zillow Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
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.
The main advantage of trading using opposite Zillow Group and Outbrain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zillow Group position performs unexpectedly, Outbrain 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 Outbrain will offset losses from the drop in Outbrain's long position.
The idea behind Zillow Group Class and Outbrain 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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