Can any of the company-specific risk be diversified away by investing in both Brinker International and Expedia 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 Brinker International and Expedia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brinker International and Expedia Group, you can compare the effects of market volatilities on Brinker International and Expedia 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 Brinker International with a short position of Expedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brinker International and Expedia.
Diversification Opportunities for Brinker International and Expedia
The 3 months correlation between Brinker and Expedia is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Brinker International and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia Group and Brinker International 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 Brinker International are associated (or correlated) with Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of Brinker International i.e., Brinker International and Expedia go up and down completely randomly.
Pair Corralation between Brinker International and Expedia
Considering the 90-day investment horizon Brinker International is expected to generate 0.79 times more return on investment than Expedia. However, Brinker International is 1.27 times less risky than Expedia. It trades about 0.51 of its potential returns per unit of risk. Expedia Group is currently generating about -0.11 per unit of risk. If you would invest 4,614 in Brinker International on March 6, 2024 and sell it today you would earn a total of 2,552 from holding Brinker International or generate 55.31% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Expedia Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.