Correlation Between Zillow Group and CarGurus

Can any of the company-specific risk be diversified away by investing in both Zillow Group and CarGurus 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 CarGurus 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 CarGurus, you can compare the effects of market volatilities on Zillow Group and CarGurus 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 CarGurus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zillow Group and CarGurus.

Diversification Opportunities for Zillow Group and CarGurus

0.91

Correlation Coefficient

Zillow Group  CarGurus

Almost no diversification

The 3 months correlation between Zillow and CarGurus is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Zillow Group Class and CarGurus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarGurus 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 CarGurus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarGurus has no effect on the direction of Zillow Group i.e., Zillow Group and CarGurus go up and down completely randomly.

Pair Corralation between Zillow Group and CarGurus

Taking into account the 90-day investment horizon Zillow Group is expected to generate 1.21 times less return on investment than CarGurus. In addition to that, Zillow Group is 1.24 times more volatile than CarGurus. It trades about 0.05 of its total potential returns per unit of risk. CarGurus is currently generating about 0.08 per unit of volatility. If you would invest  1,680  in CarGurus on October 1, 2024 and sell it today you would earn a total of  2,027  from holding CarGurus or generate 120.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Zillow Group Class  vs.  CarGurus

Zillow Group Class

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group Class are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Zillow Group showed solid returns over the last few months and may actually be approaching a breakup point.

CarGurus

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CarGurus are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, CarGurus reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zillow Group and CarGurus

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

The idea behind Zillow Group Class and CarGurus 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.