Correlation Between Choice Hotels and Microsoft
Can any of the company-specific risk be diversified away by investing in both Choice Hotels and Microsoft 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 Choice Hotels and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Choice Hotels International and Microsoft, you can compare the effects of market volatilities on Choice Hotels and Microsoft 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 Choice Hotels with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and Microsoft.
Diversification Opportunities for Choice Hotels and Microsoft
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Choice and Microsoft is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Choice 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 Choice Hotels International are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Choice Hotels i.e., Choice Hotels and Microsoft go up and down completely randomly.
Pair Corralation between Choice Hotels and Microsoft
Considering the 90-day investment horizon Choice Hotels International is expected to generate 0.96 times more return on investment than Microsoft. However, Choice Hotels International is 1.05 times less risky than Microsoft. It trades about 0.36 of its potential returns per unit of risk. Microsoft is currently generating about 0.19 per unit of risk. If you would invest 13,951 in Choice Hotels International on September 1, 2024 and sell it today you would earn a total of 1,173 from holding Choice Hotels International or generate 8.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Choice Hotels International vs. Microsoft
Performance |
| Timeline |
| Choice Hotels Intern |
| Microsoft |
Choice Hotels and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Choice Hotels and Microsoft
The main advantage of trading using opposite Choice Hotels and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Choice Hotels position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Choice Hotels vs. Hyatt Hotels | Choice Hotels vs. Hilton Worldwide Holdings | Choice Hotels vs. InterContinental Hotels Group | Choice Hotels vs. Marriott International |
| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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