Correlation Between FMC and Tripadvisor

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

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

Diversification Opportunities for FMC and Tripadvisor

-0.13

Correlation Coefficient

FMC  Tripadvisor

Good diversification

The 3 months correlation between FMC and Tripadvisor is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Tripadvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tripadvisor and FMC 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 FMC Corporation 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 FMC i.e., FMC and Tripadvisor go up and down completely randomly.

Pair Corralation between FMC and Tripadvisor

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the Tripadvisor. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.14 times less risky than Tripadvisor. The stock trades about -0.06 of its potential returns per unit of risk. The Tripadvisor is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  12,432  in Tripadvisor on October 5, 2024 and sell it today you would lose (3,072) from holding Tripadvisor or give up 24.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.58%
Values	Daily Returns

FMC Corp.  vs.  Tripadvisor

FMC Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FMC Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tripadvisor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tripadvisor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tripadvisor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FMC and Tripadvisor

The main advantage of trading using opposite FMC and Tripadvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC 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 FMC Corporation 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.