Correlation Between Yelp and IAC

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

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

Diversification Opportunities for Yelp and IAC

-0.27

Correlation Coefficient

Yelp  IAC

Very good diversification

The 3 months correlation between Yelp and IAC is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and IAC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAC Inc 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 IAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAC Inc has no effect on the direction of Yelp i.e., Yelp and IAC go up and down completely randomly.

Pair Corralation between Yelp and IAC

Given the investment horizon of 90 days Yelp Inc is expected to generate 0.85 times more return on investment than IAC. However, Yelp Inc is 1.17 times less risky than IAC. It trades about 0.06 of its potential returns per unit of risk. IAC Inc is currently generating about -0.34 per unit of risk. If you would invest  3,967  in Yelp Inc on January 31, 2024 and sell it today you would earn a total of  57.00  from holding Yelp Inc or generate 1.44% 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.  IAC Inc

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 relatively invariable essential indicators, Yelp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Yelp and IAC

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

The idea behind Yelp Inc and IAC Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.