Correlation Between Travel Leisure and Despegar Corp

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

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

Diversification Opportunities for Travel Leisure and Despegar Corp

0.89

Correlation Coefficient

Travel Leisure  Despegar Corp

Very poor diversification

The 3 months correlation between Travel and Despegar is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Travel Leisure Co and Despegar Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Despegar Corp and Travel Leisure 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 Travel Leisure Co are associated (or correlated) with Despegar Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Despegar Corp has no effect on the direction of Travel Leisure i.e., Travel Leisure and Despegar Corp go up and down completely randomly.

Pair Corralation between Travel Leisure and Despegar Corp

Considering the 90-day investment horizon Travel Leisure is expected to generate 1.68 times less return on investment than Despegar Corp. But when comparing it to its historical volatility, Travel Leisure Co is 2.23 times less risky than Despegar Corp. It trades about 0.24 of its potential returns per unit of risk. Despegar Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,229  in Despegar Corp on August 30, 2024 and sell it today you would earn a total of  544.00  from holding Despegar Corp or generate 44.26% return on investment over 90 days.

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

Travel Leisure Co  vs.  Despegar Corp

Travel Leisure

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Travel Leisure Co are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Travel Leisure disclosed solid returns over the last few months and may actually be approaching a breakup point.

Despegar Corp

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Travel Leisure and Despegar Corp

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

The idea behind Travel Leisure Co and Despegar Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.