Correlation Between Zillow Group and Northern Lights

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

Diversification Opportunities for Zillow Group and Northern Lights

0.83

Correlation Coefficient

Zillow Group  Northern Lights

Very poor diversification

The 3 months correlation between Zillow and Northern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zillow Group Class and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Zillow Group i.e., Zillow Group and Northern Lights go up and down completely randomly.

Pair Corralation between Zillow Group and Northern Lights

Taking into account the 90-day investment horizon Zillow Group Class is expected to generate 5.76 times more return on investment than Northern Lights. However, Zillow Group is 5.76 times more volatile than Northern Lights. It trades about 0.21 of its potential returns per unit of risk. Northern Lights is currently generating about 0.17 per unit of risk. If you would invest  5,401  in Zillow Group Class on August 31, 2024 and sell it today you would earn a total of  3,144  from holding Zillow Group Class or generate 58.21% return on investment over 90 days.

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

Zillow Group Class  vs.  Northern Lights

Zillow Group Class

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group Class are ranked lower than 16 (%) 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.

Northern Lights

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Zillow Group and Northern Lights

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

The idea behind Zillow Group Class and Northern Lights 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.