Correlation Between Zillow and Redfin Corp

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

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

Diversification Opportunities for Zillow and Redfin Corp

-0.57

Correlation Coefficient

Zillow  Redfin Corp

Excellent diversification

The 3 months correlation between Zillow and Redfin is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Zillow Group and Redfin Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redfin Corp and Zillow 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 are associated (or correlated) with Redfin Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redfin Corp has no effect on the direction of Zillow i.e., Zillow and Redfin Corp go up and down completely randomly.

Pair Corralation between Zillow and Redfin Corp

Allowing for the 90-day total investment horizon Zillow Group is expected to generate 0.65 times more return on investment than Redfin Corp. However, Zillow Group is 1.53 times less risky than Redfin Corp. It trades about 0.12 of its potential returns per unit of risk. Redfin Corp is currently generating about 0.07 per unit of risk. If you would invest  4,504  in Zillow Group on September 26, 2024 and sell it today you would earn a total of  2,834  from holding Zillow Group or generate 62.92% return on investment over 90 days.

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

Zillow Group  vs.  Redfin Corp

Zillow Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Zillow reported solid returns over the last few months and may actually be approaching a breakup point.

Redfin Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redfin Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental 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 Zillow and Redfin Corp

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

The idea behind Zillow Group and Redfin Corp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.