Correlation Between Despegar Corp and Biglari Holdings

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

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

Diversification Opportunities for Despegar Corp and Biglari Holdings

0.79

Correlation Coefficient

Despegar Corp  Biglari Holdings

Poor diversification

The 3 months correlation between Despegar and Biglari is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Despegar Corp and Biglari Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biglari Holdings and Despegar Corp 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 Despegar Corp are associated (or correlated) with Biglari Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biglari Holdings has no effect on the direction of Despegar Corp i.e., Despegar Corp and Biglari Holdings go up and down completely randomly.

Pair Corralation between Despegar Corp and Biglari Holdings

Given the investment horizon of 90 days Despegar Corp is expected to generate 1.61 times less return on investment than Biglari Holdings. In addition to that, Despegar Corp is 2.43 times more volatile than Biglari Holdings. It trades about 0.08 of its total potential returns per unit of risk. Biglari Holdings is currently generating about 0.32 per unit of volatility. If you would invest  21,043  in Biglari Holdings on September 29, 2024 and sell it today you would earn a total of  4,677  from holding Biglari Holdings or generate 22.23% return on investment over 90 days.

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

Despegar Corp  vs.  Biglari Holdings

Despegar Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Despegar Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Despegar Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Biglari Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Despegar Corp and Biglari Holdings

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

The idea behind Despegar Corp and Biglari 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.