Correlation Between Aeorema Communications and Booking Holdings

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

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

Diversification Opportunities for Aeorema Communications and Booking Holdings

0.38

Correlation Coefficient

Aeorema Communications  Booking Holdings

Weak diversification

The 3 months correlation between Aeorema and Booking is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and Booking Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booking Holdings and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with Booking Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Booking Holdings has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Booking Holdings go up and down completely randomly.

Pair Corralation between Aeorema Communications and Booking Holdings

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the Booking Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Aeorema Communications Plc is 10.34 times less risky than Booking Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The Booking Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  433,813  in Booking Holdings on October 26, 2024 and sell it today you would earn a total of  27,673  from holding Booking Holdings or generate 6.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Aeorema Communications Plc  vs.  Booking Holdings

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Booking Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Booking Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aeorema Communications and Booking Holdings

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

The idea behind Aeorema Communications Plc and Booking Holdings 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.