Correlation Between MHP Hotel and Choice Hotels

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

Diversification Opportunities for MHP Hotel and Choice Hotels

0.08
  Correlation Coefficient

Significant diversification

The 3 months correlation between MHP and Choice is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding MHP Hotel AG and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern and MHP Hotel 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 MHP Hotel AG are associated (or correlated) with Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of MHP Hotel i.e., MHP Hotel and Choice Hotels go up and down completely randomly.

Pair Corralation between MHP Hotel and Choice Hotels

Assuming the 90 days trading horizon MHP Hotel is expected to generate 4.66 times less return on investment than Choice Hotels. In addition to that, MHP Hotel is 1.51 times more volatile than Choice Hotels International. It trades about 0.01 of its total potential returns per unit of risk. Choice Hotels International is currently generating about 0.04 per unit of volatility. If you would invest  10,772  in Choice Hotels International on August 28, 2024 and sell it today you would earn a total of  3,428  from holding Choice Hotels International or generate 31.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

MHP Hotel AG  vs.  Choice Hotels International

 Performance 
       Timeline  
MHP Hotel AG 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in MHP Hotel AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, MHP Hotel may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Choice Hotels Intern 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

MHP Hotel and Choice Hotels Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MHP Hotel and Choice Hotels

The main advantage of trading using opposite MHP Hotel and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MHP Hotel position performs unexpectedly, Choice Hotels 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 Choice Hotels will offset losses from the drop in Choice Hotels' long position.
The idea behind MHP Hotel AG and Choice Hotels International 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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