Correlation Between Booking Holdings and TripAdvisor

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

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

Diversification Opportunities for Booking Holdings and TripAdvisor

-0.64

Correlation Coefficient

Booking Holdings  TripAdvisor

Excellent diversification

The 3 months correlation between Booking and TripAdvisor is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Booking Holdings and TripAdvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TripAdvisor and Booking Holdings 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 Booking Holdings 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 Booking Holdings i.e., Booking Holdings and TripAdvisor go up and down completely randomly.

Pair Corralation between Booking Holdings and TripAdvisor

Given the investment horizon of 90 days Booking Holdings is expected to generate 13.43 times less return on investment than TripAdvisor. But when comparing it to its historical volatility, Booking Holdings is 1.73 times less risky than TripAdvisor. It trades about 0.02 of its potential returns per unit of risk. TripAdvisor is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,343  in TripAdvisor on November 19, 2024 and sell it today you would earn a total of  438.00  from holding TripAdvisor or generate 32.61% return on investment over 90 days.

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

Booking Holdings  vs.  TripAdvisor

Booking Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Booking Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

TripAdvisor

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TripAdvisor are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward indicators, TripAdvisor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Booking Holdings and TripAdvisor

The main advantage of trading using opposite Booking Holdings and TripAdvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Booking Holdings 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 Booking Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.