Correlation Between Diamondrock Hospitality and Sotherly Hotels
Can any of the company-specific risk be diversified away by investing in both Diamondrock Hospitality and Sotherly 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 Diamondrock Hospitality and Sotherly Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diamondrock Hospitality and Sotherly Hotels Series, you can compare the effects of market volatilities on Diamondrock Hospitality and Sotherly 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 Diamondrock Hospitality with a short position of Sotherly Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondrock Hospitality and Sotherly Hotels.
Diversification Opportunities for Diamondrock Hospitality and Sotherly Hotels
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Diamondrock and Sotherly is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Diamondrock Hospitality and Sotherly Hotels Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels Series and Diamondrock Hospitality 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 Diamondrock Hospitality are associated (or correlated) with Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels Series has no effect on the direction of Diamondrock Hospitality i.e., Diamondrock Hospitality and Sotherly Hotels go up and down completely randomly.
Pair Corralation between Diamondrock Hospitality and Sotherly Hotels
Considering the 90-day investment horizon Diamondrock Hospitality is expected to generate 1.68 times more return on investment than Sotherly Hotels. However, Diamondrock Hospitality is 1.68 times more volatile than Sotherly Hotels Series. It trades about 0.09 of its potential returns per unit of risk. Sotherly Hotels Series is currently generating about -0.24 per unit of risk. If you would invest 889.00 in Diamondrock Hospitality on August 31, 2024 and sell it today you would earn a total of 31.00 from holding Diamondrock Hospitality or generate 3.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diamondrock Hospitality vs. Sotherly Hotels Series
Performance |
| Timeline |
| Diamondrock Hospitality |
| Sotherly Hotels Series |
Diamondrock Hospitality and Sotherly Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diamondrock Hospitality and Sotherly Hotels
The main advantage of trading using opposite Diamondrock Hospitality and Sotherly Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamondrock Hospitality position performs unexpectedly, Sotherly 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 Sotherly Hotels will offset losses from the drop in Sotherly Hotels' long position.The idea behind Diamondrock Hospitality and Sotherly Hotels Series 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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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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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