Correlation Between European Residential and American Hotel
Can any of the company-specific risk be diversified away by investing in both European Residential and American Hotel 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 European Residential and American Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Residential Real and American Hotel Income, you can compare the effects of market volatilities on European Residential and American Hotel 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 European Residential with a short position of American Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and American Hotel.
Diversification Opportunities for European Residential and American Hotel
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between European and American is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income and European Residential 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 European Residential Real are associated (or correlated) with American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of European Residential i.e., European Residential and American Hotel go up and down completely randomly.
Pair Corralation between European Residential and American Hotel
Assuming the 90 days trading horizon European Residential Real is expected to under-perform the American Hotel. In addition to that, European Residential is 1.66 times more volatile than American Hotel Income. It trades about -0.21 of its total potential returns per unit of risk. American Hotel Income is currently generating about 0.25 per unit of volatility. If you would invest 50.00 in American Hotel Income on October 24, 2024 and sell it today you would earn a total of 14.00 from holding American Hotel Income or generate 28.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Residential Real vs. American Hotel Income
Performance |
| Timeline |
| European Residential Real |
| American Hotel Income |
European Residential and American Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Residential and American Hotel
The main advantage of trading using opposite European Residential and American Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Residential position performs unexpectedly, American Hotel 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 American Hotel will offset losses from the drop in American Hotel's long position.| European Residential vs. BSR Real Estate | European Residential vs. Minto Apartment Real | European Residential vs. Nexus Real Estate | European Residential vs. Morguard North American |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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