Correlation Between TripAdvisor and Booking Holdings

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

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

Diversification Opportunities for TripAdvisor and Booking Holdings

0.27

Correlation Coefficient

TripAdvisor  Booking Holdings

Modest diversification

The 3 months correlation between TripAdvisor and Booking is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding TripAdvisor and Booking Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booking Holdings and TripAdvisor 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 TripAdvisor are associated (or correlated) with Booking Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Booking Holdings has no effect on the direction of TripAdvisor i.e., TripAdvisor and Booking Holdings go up and down completely randomly.

Pair Corralation between TripAdvisor and Booking Holdings

Given the investment horizon of 90 days TripAdvisor is expected to under-perform the Booking Holdings. In addition to that, TripAdvisor is 1.99 times more volatile than Booking Holdings. It trades about -0.15 of its total potential returns per unit of risk. Booking Holdings is currently generating about 0.46 per unit of volatility. If you would invest  442,754  in Booking Holdings on August 30, 2024 and sell it today you would earn a total of  79,561  from holding Booking Holdings or generate 17.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

TripAdvisor  vs.  Booking Holdings

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.

Booking Holdings

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Booking Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TripAdvisor and Booking Holdings

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

The idea behind TripAdvisor and Booking Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .