Correlation Between Hyatt Hotels and Wells Fargo

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Can any of the company-specific risk be diversified away by investing in both Hyatt Hotels and Wells Fargo 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 Hyatt Hotels and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hyatt Hotels and West Fraser Timber, you can compare the effects of market volatilities on Hyatt Hotels and Wells Fargo 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 Hyatt Hotels with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyatt Hotels and Wells Fargo.

Diversification Opportunities for Hyatt Hotels and Wells Fargo

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between Hyatt and Wells is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hyatt Hotels and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber and Hyatt Hotels 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 Hyatt Hotels are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of Hyatt Hotels i.e., Hyatt Hotels and Wells Fargo go up and down completely randomly.

Pair Corralation between Hyatt Hotels and Wells Fargo

Assuming the 90 days trading horizon Hyatt Hotels is expected to generate 1.03 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Hyatt Hotels is 1.05 times less risky than Wells Fargo. It trades about 0.06 of its potential returns per unit of risk. West Fraser Timber is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,882  in West Fraser Timber on September 14, 2024 and sell it today you would earn a total of  1,853  from holding West Fraser Timber or generate 26.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Hyatt Hotels  vs.  West Fraser Timber

 Performance 
       Timeline  
Hyatt Hotels 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Hyatt Hotels are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hyatt Hotels reported solid returns over the last few months and may actually be approaching a breakup point.
West Fraser Timber 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in West Fraser Timber are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hyatt Hotels and Wells Fargo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hyatt Hotels and Wells Fargo

The main advantage of trading using opposite Hyatt Hotels and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hyatt Hotels position performs unexpectedly, Wells Fargo 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 Wells Fargo will offset losses from the drop in Wells Fargo's long position.
The idea behind Hyatt Hotels and West Fraser Timber 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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