Correlation Between Travel Leisure and TripAdvisor

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

Diversification Opportunities for Travel Leisure and TripAdvisor

0.64

Correlation Coefficient

Travel Leisure  TripAdvisor

Poor diversification

The 3 months correlation between Travel and TripAdvisor is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Travel Leisure Co and TripAdvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TripAdvisor 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 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 Travel Leisure i.e., Travel Leisure and TripAdvisor go up and down completely randomly.

Pair Corralation between Travel Leisure and TripAdvisor

Considering the 90-day investment horizon Travel Leisure Co is expected to under-perform the TripAdvisor. But the stock apears to be less risky and, when comparing its historical volatility, Travel Leisure Co is 1.59 times less risky than TripAdvisor. The stock trades about -0.04 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  1,490  in TripAdvisor on December 30, 2024 and sell it today you would lose (81.00) from holding TripAdvisor or give up 5.44% of portfolio value over 90 days.

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

Travel Leisure Co  vs.  TripAdvisor

Travel Leisure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Travel Leisure Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Travel Leisure is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

TripAdvisor

Risk-Adjusted Performance

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 Travel Leisure and TripAdvisor

The main advantage of trading using opposite Travel Leisure and TripAdvisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travel Leisure 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 Travel Leisure Co 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.