Correlation Between Travel Leisure and Trip Group

Can any of the company-specific risk be diversified away by investing in both Travel Leisure and Trip Group 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 Trip Group 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 Trip Group Ltd, you can compare the effects of market volatilities on Travel Leisure and Trip Group 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 Trip Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travel Leisure and Trip Group.

Diversification Opportunities for Travel Leisure and Trip Group

0.72

Correlation Coefficient

Travel Leisure  Trip Group

Poor diversification

The 3 months correlation between Travel and Trip is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Travel Leisure Co and Trip Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trip Group 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 Trip Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trip Group has no effect on the direction of Travel Leisure i.e., Travel Leisure and Trip Group go up and down completely randomly.

Pair Corralation between Travel Leisure and Trip Group

Considering the 90-day investment horizon Travel Leisure is expected to generate 1.43 times less return on investment than Trip Group. But when comparing it to its historical volatility, Travel Leisure Co is 2.28 times less risky than Trip Group. It trades about 0.24 of its potential returns per unit of risk. Trip Group Ltd is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,714  in Trip Group Ltd on August 30, 2024 and sell it today you would earn a total of  1,666  from holding Trip Group Ltd or generate 35.34% return on investment over 90 days.

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

Travel Leisure Co  vs.  Trip Group Ltd

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.

Trip Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trip Group Ltd are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Trip Group displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Travel Leisure and Trip Group

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

The idea behind Travel Leisure Co and Trip Group Ltd 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.