Correlation Between Yelp and Groupon

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

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

Diversification Opportunities for Yelp and Groupon

-0.2

Correlation Coefficient

Yelp  Groupon

Good diversification

The 3 months correlation between Yelp and Groupon is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and Groupon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Groupon 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 Groupon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Groupon has no effect on the direction of Yelp i.e., Yelp and Groupon go up and down completely randomly.

Pair Corralation between Yelp and Groupon

Given the investment horizon of 90 days Yelp Inc is expected to under-perform the Groupon. But the stock apears to be less risky and, when comparing its historical volatility, Yelp Inc is 3.91 times less risky than Groupon. The stock trades about -0.04 of its potential returns per unit of risk. The Groupon is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,114  in Groupon on February 7, 2024 and sell it today you would earn a total of  6.00  from holding Groupon or generate 0.54% return on investment over 90 days.

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

Yelp Inc  vs.  Groupon

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.

Groupon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Groupon 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 Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Yelp and Groupon

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

The idea behind Yelp Inc and Groupon 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.