Correlation Between Smart Share and Despegar Corp

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

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

Diversification Opportunities for Smart Share and Despegar Corp

0.02

Correlation Coefficient

Smart Share  Despegar Corp

Significant diversification

The 3 months correlation between Smart and Despegar is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Smart Share Global and Despegar Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Despegar Corp and Smart Share 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 Smart Share Global are associated (or correlated) with Despegar Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Despegar Corp has no effect on the direction of Smart Share i.e., Smart Share and Despegar Corp go up and down completely randomly.

Pair Corralation between Smart Share and Despegar Corp

Allowing for the 90-day total investment horizon Smart Share Global is expected to under-perform the Despegar Corp. But the stock apears to be less risky and, when comparing its historical volatility, Smart Share Global is 2.6 times less risky than Despegar Corp. The stock trades about -0.01 of its potential returns per unit of risk. The Despegar Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,789  in Despegar Corp on September 29, 2024 and sell it today you would earn a total of  148.00  from holding Despegar Corp or generate 8.27% return on investment over 90 days.

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

Smart Share Global  vs.  Despegar Corp

Smart Share Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Share Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Smart Share is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Smart Share and Despegar Corp

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

The idea behind Smart Share Global and Despegar 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.

Check out your portfolio center.

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.