Correlation Between RLJ Lodging and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and ARMOUR Residential 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 RLJ Lodging and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RLJ Lodging Trust and ARMOUR Residential REIT, you can compare the effects of market volatilities on RLJ Lodging and ARMOUR Residential 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 RLJ Lodging with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and ARMOUR Residential.
Diversification Opportunities for RLJ Lodging and ARMOUR Residential
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between RLJ and ARMOUR is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and RLJ Lodging 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 RLJ Lodging Trust are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and ARMOUR Residential go up and down completely randomly.
Pair Corralation between RLJ Lodging and ARMOUR Residential
Assuming the 90 days trading horizon RLJ Lodging Trust is expected to generate 0.51 times more return on investment than ARMOUR Residential. However, RLJ Lodging Trust is 1.96 times less risky than ARMOUR Residential. It trades about 0.07 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.01 per unit of risk. If you would invest 2,488 in RLJ Lodging Trust on October 26, 2024 and sell it today you would earn a total of 29.00 from holding RLJ Lodging Trust or generate 1.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. ARMOUR Residential REIT
Performance |
| Timeline |
| RLJ Lodging Trust |
| ARMOUR Residential REIT |
RLJ Lodging and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and ARMOUR Residential
The main advantage of trading using opposite RLJ Lodging and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, ARMOUR Residential 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 ARMOUR Residential will offset losses from the drop in ARMOUR Residential's long position.| RLJ Lodging vs. Diamondrock Hospitality | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Sunstone Hotel Investors |
| ARMOUR Residential vs. Cherry Hill Mortgage | ARMOUR Residential vs. AGNC Investment Corp | ARMOUR Residential vs. Chimera Investment | ARMOUR Residential vs. Two Harbors 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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