Correlation Between Sea and TripAdvisor

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

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

Diversification Opportunities for Sea and TripAdvisor

-0.39

Correlation Coefficient

Sea  TripAdvisor

Very good diversification

The 3 months correlation between Sea and TripAdvisor is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Sea and TripAdvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TripAdvisor and Sea 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 Sea 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 Sea i.e., Sea and TripAdvisor go up and down completely randomly.

Pair Corralation between Sea and TripAdvisor

Allowing for the 90-day total investment horizon Sea is expected to generate 0.99 times more return on investment than TripAdvisor. However, Sea is 1.01 times less risky than TripAdvisor. It trades about 0.14 of its potential returns per unit of risk. TripAdvisor is currently generating about -0.05 per unit of risk. If you would invest  10,863  in Sea on September 19, 2024 and sell it today you would earn a total of  598.00  from holding Sea or generate 5.5% return on investment over 90 days.

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

Sea  vs.  TripAdvisor

Sea

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

TripAdvisor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TripAdvisor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, TripAdvisor is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Sea and TripAdvisor

The main advantage of trading using opposite Sea and TripAdvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.