Correlation Between Airbnb and TripAdvisor

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

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

Diversification Opportunities for Airbnb and TripAdvisor

0.3

Correlation Coefficient

Airbnb  TripAdvisor

Weak diversification

The 3 months correlation between Airbnb and TripAdvisor is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Airbnb Inc and TripAdvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TripAdvisor and Airbnb 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 Airbnb Inc are associated (or correlated) with TripAdvisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TripAdvisor has no effect on the direction of Airbnb i.e., Airbnb and TripAdvisor go up and down completely randomly.

Pair Corralation between Airbnb and TripAdvisor

Given the investment horizon of 90 days Airbnb Inc is expected to under-perform the TripAdvisor. But the stock apears to be less risky and, when comparing its historical volatility, Airbnb Inc is 1.07 times less risky than TripAdvisor. The stock trades about -0.03 of its potential returns per unit of risk. The TripAdvisor is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,490  in TripAdvisor on December 30, 2024 and sell it today you would lose (81.00) from holding TripAdvisor or give up 5.44% of portfolio value over 90 days.

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

Airbnb Inc  vs.  TripAdvisor

Airbnb Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Airbnb Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

TripAdvisor

Risk-Adjusted Performance

Very Weak

Over the last 90 days TripAdvisor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, TripAdvisor is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Airbnb and TripAdvisor

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

The idea behind Airbnb Inc and TripAdvisor 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.