Correlation Between Choice Hotels and FLOW TRADERS
Can any of the company-specific risk be diversified away by investing in both Choice Hotels and FLOW TRADERS 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 FLOW TRADERS 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 FLOW TRADERS LTD, you can compare the effects of market volatilities on Choice Hotels and FLOW TRADERS 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 FLOW TRADERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and FLOW TRADERS.
Diversification Opportunities for Choice Hotels and FLOW TRADERS
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Choice and FLOW is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and FLOW TRADERS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLOW TRADERS LTD 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 FLOW TRADERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLOW TRADERS LTD has no effect on the direction of Choice Hotels i.e., Choice Hotels and FLOW TRADERS go up and down completely randomly.
Pair Corralation between Choice Hotels and FLOW TRADERS
Assuming the 90 days horizon Choice Hotels International is expected to generate 1.2 times more return on investment than FLOW TRADERS. However, Choice Hotels is 1.2 times more volatile than FLOW TRADERS LTD. It trades about 0.22 of its potential returns per unit of risk. FLOW TRADERS LTD is currently generating about 0.24 per unit of risk. If you would invest 11,372 in Choice Hotels International on September 3, 2024 and sell it today you would earn a total of 2,728 from holding Choice Hotels International or generate 23.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Choice Hotels International vs. FLOW TRADERS LTD
Performance |
| Timeline |
| Choice Hotels Intern |
| FLOW TRADERS LTD |
Choice Hotels and FLOW TRADERS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Choice Hotels and FLOW TRADERS
The main advantage of trading using opposite Choice Hotels and FLOW TRADERS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Choice Hotels position performs unexpectedly, FLOW TRADERS 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 FLOW TRADERS will offset losses from the drop in FLOW TRADERS's long position.| Choice Hotels vs. Check Point Software | Choice Hotels vs. AXWAY SOFTWARE EO | Choice Hotels vs. ECHO INVESTMENT ZY | Choice Hotels vs. Take Two Interactive Software |
| FLOW TRADERS vs. Morgan Stanley | FLOW TRADERS vs. The Goldman Sachs | FLOW TRADERS vs. The Goldman Sachs | FLOW TRADERS vs. Superior Plus Corp |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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