Correlation Between RLJ Lodging and Sunstone Hotel
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Sunstone 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 RLJ Lodging and Sunstone Hotel 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 Sunstone Hotel Investors, you can compare the effects of market volatilities on RLJ Lodging and Sunstone 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 RLJ Lodging with a short position of Sunstone Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Sunstone Hotel.
Diversification Opportunities for RLJ Lodging and Sunstone Hotel
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between RLJ and Sunstone is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Sunstone Hotel go up and down completely randomly.
Pair Corralation between RLJ Lodging and Sunstone Hotel
Assuming the 90 days trading horizon RLJ Lodging Trust is expected to under-perform the Sunstone Hotel. But the preferred stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 3.26 times less risky than Sunstone Hotel. The preferred stock trades about -0.13 of its potential returns per unit of risk. The Sunstone Hotel Investors is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,011 in Sunstone Hotel Investors on August 24, 2024 and sell it today you would earn a total of 7.00 from holding Sunstone Hotel Investors or generate 0.69% 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. Sunstone Hotel Investors
Performance |
| Timeline |
| RLJ Lodging Trust |
| Sunstone Hotel Investors |
RLJ Lodging and Sunstone Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and Sunstone Hotel
The main advantage of trading using opposite RLJ Lodging and Sunstone Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Sunstone 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 Sunstone Hotel will offset losses from the drop in Sunstone Hotel'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 |
| Sunstone Hotel vs. Diamondrock Hospitality | Sunstone Hotel vs. Ryman Hospitality Properties | Sunstone Hotel vs. Pebblebrook Hotel Trust | Sunstone Hotel 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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