Correlation Between New Momentum and Booking Holdings

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

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

Diversification Opportunities for New Momentum and Booking Holdings

-0.53

Correlation Coefficient

New Momentum  Booking Holdings

Excellent diversification

The 3 months correlation between New and Booking is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding New Momentum and Booking Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Booking Holdings and New Momentum 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 New Momentum 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 New Momentum i.e., New Momentum and Booking Holdings go up and down completely randomly.

Pair Corralation between New Momentum and Booking Holdings

Given the investment horizon of 90 days New Momentum is expected to generate 10.22 times more return on investment than Booking Holdings. However, New Momentum is 10.22 times more volatile than Booking Holdings. It trades about 0.04 of its potential returns per unit of risk. Booking Holdings is currently generating about 0.11 per unit of risk. If you would invest  0.87  in New Momentum on September 29, 2024 and sell it today you would lose (0.82) from holding New Momentum or give up 94.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

New Momentum  vs.  Booking Holdings

New Momentum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Momentum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, New Momentum showed solid returns over the last few months and may actually be approaching a breakup point.

Booking Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 16 (%) 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 New Momentum and Booking Holdings

The main advantage of trading using opposite New Momentum and Booking Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Momentum 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 New Momentum 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.