Correlation Between TripAdvisor and New Momentum

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

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

Diversification Opportunities for TripAdvisor and New Momentum

0.19

Correlation Coefficient

TripAdvisor  New Momentum

Average diversification

The 3 months correlation between TripAdvisor and New is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding TripAdvisor and New Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Momentum 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 New Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Momentum has no effect on the direction of TripAdvisor i.e., TripAdvisor and New Momentum go up and down completely randomly.

Pair Corralation between TripAdvisor and New Momentum

Given the investment horizon of 90 days TripAdvisor is expected to generate 12.12 times less return on investment than New Momentum. But when comparing it to its historical volatility, TripAdvisor is 4.76 times less risky than New Momentum. It trades about 0.02 of its potential returns per unit of risk. New Momentum is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.06  in New Momentum on September 30, 2024 and sell it today you would lose (0.01) from holding New Momentum or give up 16.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

TripAdvisor  vs.  New Momentum

TripAdvisor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TripAdvisor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, TripAdvisor is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with TripAdvisor and New Momentum

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

The idea behind TripAdvisor and New Momentum 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.