Correlation Between IAC and Groupon

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

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

Diversification Opportunities for IAC and Groupon

0.55

Correlation Coefficient

IAC  Groupon

Very weak diversification

The 3 months correlation between IAC and Groupon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding IAC Inc and Groupon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Groupon and IAC 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 IAC 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 IAC i.e., IAC and Groupon go up and down completely randomly.

Pair Corralation between IAC and Groupon

Considering the 90-day investment horizon IAC is expected to generate 4.14 times less return on investment than Groupon. But when comparing it to its historical volatility, IAC Inc is 2.48 times less risky than Groupon. It trades about 0.01 of its potential returns per unit of risk. Groupon is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,155  in Groupon on September 4, 2024 and sell it today you would lose (204.00) from holding Groupon or give up 17.66% of portfolio value over 90 days.

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

IAC Inc  vs.  Groupon

IAC Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAC Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IAC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with IAC and Groupon

The main advantage of trading using opposite IAC and Groupon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IAC 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 IAC 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.

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.