Correlation Between Expedia and Frontdoor

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

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

Diversification Opportunities for Expedia and Frontdoor

0.92

Correlation Coefficient

Expedia  Frontdoor

Almost no diversification

The 3 months correlation between Expedia and Frontdoor is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Expedia Group and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor 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 Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Expedia i.e., Expedia and Frontdoor go up and down completely randomly.

Pair Corralation between Expedia and Frontdoor

Given the investment horizon of 90 days Expedia Group is expected to generate 0.87 times more return on investment than Frontdoor. However, Expedia Group is 1.15 times less risky than Frontdoor. It trades about 0.31 of its potential returns per unit of risk. Frontdoor is currently generating about 0.18 per unit of risk. If you would invest  13,674  in Expedia Group on August 31, 2024 and sell it today you would earn a total of  4,818  from holding Expedia Group or generate 35.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Expedia Group  vs.  Frontdoor

Expedia Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Expedia exhibited solid returns over the last few months and may actually be approaching a breakup point.

Frontdoor

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Expedia and Frontdoor

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

The idea behind Expedia Group and Frontdoor 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.