Can any of the company-specific risk be diversified away by investing in both Marchex and Travelzoo 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 Marchex and Travelzoo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marchex and Travelzoo, you can compare the effects of market volatilities on Marchex and Travelzoo 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 Marchex with a short position of Travelzoo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marchex and Travelzoo.
Diversification Opportunities for Marchex and Travelzoo
The 3 months correlation between Marchex and Travelzoo is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Marchex and Travelzoo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Travelzoo and Marchex 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 Marchex are associated (or correlated) with Travelzoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Travelzoo has no effect on the direction of Marchex i.e., Marchex and Travelzoo go up and down completely randomly.
Given the investment horizon of 90 days Marchex is expected to generate 1.4 times more return on investment than Travelzoo. However, Marchex is 1.4 times more volatile than Travelzoo. It trades about -0.01 of its potential returns per unit of risk. Travelzoo is currently generating about -0.25 per unit of risk. If you would invest 138.00 in Marchex on March 6, 2024 and sell it today you would lose (2.00) from holding Marchex or give up 1.45% of portfolio value over 90 days.
Over the last 90 days Marchex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Marchex is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Travelzoo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.