Correlation Between BP PLC and RLJ Lodging
Can any of the company-specific risk be diversified away by investing in both BP PLC and RLJ Lodging 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 BP PLC and RLJ Lodging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC ADR and RLJ Lodging Trust, you can compare the effects of market volatilities on BP PLC and RLJ Lodging 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 BP PLC with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and RLJ Lodging.
Diversification Opportunities for BP PLC and RLJ Lodging
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BP PLC and RLJ is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust and BP PLC 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 BP PLC ADR are associated (or correlated) with RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of BP PLC i.e., BP PLC and RLJ Lodging go up and down completely randomly.
Pair Corralation between BP PLC and RLJ Lodging
Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the RLJ Lodging. But the stock apears to be less risky and, when comparing its historical volatility, BP PLC ADR is 1.07 times less risky than RLJ Lodging. The stock trades about -0.09 of its potential returns per unit of risk. The RLJ Lodging Trust is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 926.00 in RLJ Lodging Trust on September 2, 2024 and sell it today you would earn a total of 95.00 from holding RLJ Lodging Trust or generate 10.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. RLJ Lodging Trust
Performance |
| Timeline |
| BP PLC ADR |
| RLJ Lodging Trust |
BP PLC and RLJ Lodging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and RLJ Lodging
The main advantage of trading using opposite BP PLC and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, RLJ Lodging 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 RLJ Lodging will offset losses from the drop in RLJ Lodging's long position.The idea behind BP PLC ADR and RLJ Lodging Trust 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.| RLJ Lodging vs. Sunstone Hotel Investors | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Ryman Hospitality Properties |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
Other Complementary Tools
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device |