Correlation Between RLJ Lodging and EPR Properties
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and EPR Properties 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 EPR Properties 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 EPR Properties, you can compare the effects of market volatilities on RLJ Lodging and EPR Properties 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 EPR Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and EPR Properties.
Diversification Opportunities for RLJ Lodging and EPR Properties
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between RLJ and EPR is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and EPR Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPR Properties 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 EPR Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPR Properties has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and EPR Properties go up and down completely randomly.
Pair Corralation between RLJ Lodging and EPR Properties
Assuming the 90 days trading horizon RLJ Lodging Trust is expected to generate 0.44 times more return on investment than EPR Properties. However, RLJ Lodging Trust is 2.28 times less risky than EPR Properties. It trades about -0.02 of its potential returns per unit of risk. EPR Properties is currently generating about -0.12 per unit of risk. If you would invest 2,537 in RLJ Lodging Trust on September 26, 2024 and sell it today you would lose (5.00) from holding RLJ Lodging Trust or give up 0.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. EPR Properties
Performance |
| Timeline |
| RLJ Lodging Trust |
| EPR Properties |
RLJ Lodging and EPR Properties Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and EPR Properties
The main advantage of trading using opposite RLJ Lodging and EPR Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, EPR Properties 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 EPR Properties will offset losses from the drop in EPR Properties' long position.| RLJ Lodging vs. Ashford Hospitality Trust | RLJ Lodging vs. Braemar Hotels Resorts | RLJ Lodging vs. Ashford Hospitality Trust | RLJ Lodging vs. Braemar Hotels Resorts |
| EPR Properties vs. EPR Properties | EPR Properties vs. Lexington Realty Trust | EPR Properties vs. RLJ Lodging Trust |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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