Correlation Between Expedia and Tripadvisor

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

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

Diversification Opportunities for Expedia and Tripadvisor

0.27

Correlation Coefficient

Expedia  Tripadvisor

Modest diversification

The 3 months correlation between Expedia and Tripadvisor is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Expedia Group and Tripadvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tripadvisor and Expedia 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 Expedia Group 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 Expedia i.e., Expedia and Tripadvisor go up and down completely randomly.

Pair Corralation between Expedia and Tripadvisor

Assuming the 90 days trading horizon Expedia Group is expected to generate 1.23 times more return on investment than Tripadvisor. However, Expedia is 1.23 times more volatile than Tripadvisor. It trades about 0.11 of its potential returns per unit of risk. Tripadvisor is currently generating about 0.09 per unit of risk. If you would invest  53,689  in Expedia Group on September 23, 2024 and sell it today you would earn a total of  2,621  from holding Expedia Group or generate 4.88% return on investment over 90 days.

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

Expedia Group  vs.  Tripadvisor

Expedia Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Expedia sustained solid returns over the last few months and may actually be approaching a breakup point.

Tripadvisor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tripadvisor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tripadvisor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Expedia and Tripadvisor

The main advantage of trading using opposite Expedia and Tripadvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Expedia 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 Expedia Group 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..