Correlation Between LPL Financial and Tripadvisor

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

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

Diversification Opportunities for LPL Financial and Tripadvisor

-0.05

Correlation Coefficient

LPL Financial  Tripadvisor

Good diversification

The 3 months correlation between LPL and Tripadvisor is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding LPL Financial Holdings and Tripadvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tripadvisor and LPL Financial 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 LPL Financial Holdings 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 LPL Financial i.e., LPL Financial and Tripadvisor go up and down completely randomly.

Pair Corralation between LPL Financial and Tripadvisor

Assuming the 90 days trading horizon LPL Financial is expected to generate 1.45 times less return on investment than Tripadvisor. But when comparing it to its historical volatility, LPL Financial Holdings is 1.99 times less risky than Tripadvisor. It trades about 0.25 of its potential returns per unit of risk. Tripadvisor is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,072  in Tripadvisor on October 25, 2024 and sell it today you would earn a total of  1,450  from holding Tripadvisor or generate 17.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.44%
Values	Daily Returns

LPL Financial Holdings  vs.  Tripadvisor

LPL Financial Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LPL Financial 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 weak basic indicators, Tripadvisor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LPL Financial and Tripadvisor

The main advantage of trading using opposite LPL Financial and Tripadvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LPL Financial 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 LPL Financial Holdings 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 Commodity Directory module to find actively traded commodities issued by global exchanges.