Correlation Between DRW and Zillow Group

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

By analyzing existing cross correlation between DRW and Zillow Group Class, you can compare the effects of market volatilities on DRW and Zillow 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 DRW with a short position of Zillow Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of DRW and Zillow Group.

Diversification Opportunities for DRW and Zillow Group

0.22

Correlation Coefficient

DRW  Zillow Group

Modest diversification

The 3 months correlation between DRW and Zillow is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding DRW and Zillow Group Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group Class and DRW 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 DRW are associated (or correlated) with Zillow Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group Class has no effect on the direction of DRW i.e., DRW and Zillow Group go up and down completely randomly.

Pair Corralation between DRW and Zillow Group

Considering the 90-day investment horizon DRW is expected to generate 4.23 times less return on investment than Zillow Group. But when comparing it to its historical volatility, DRW is 2.68 times less risky than Zillow Group. It trades about 0.04 of its potential returns per unit of risk. Zillow Group Class is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,368  in Zillow Group Class on September 22, 2024 and sell it today you would earn a total of  4,341  from holding Zillow Group Class or generate 128.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	27.97%
Values	Daily Returns

DRW  vs.  Zillow Group Class

DRW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DRW is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with DRW and Zillow Group

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

The idea behind DRW and Zillow Group Class 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.