Correlation Between RLJ Lodging and ARB IOT
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and ARB IOT 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 ARB IOT 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 ARB IOT Group, you can compare the effects of market volatilities on RLJ Lodging and ARB IOT 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 ARB IOT. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and ARB IOT.
Diversification Opportunities for RLJ Lodging and ARB IOT
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between RLJ and ARB is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and ARB IOT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARB IOT Group 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 ARB IOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARB IOT Group has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and ARB IOT go up and down completely randomly.
Pair Corralation between RLJ Lodging and ARB IOT
Considering the 90-day investment horizon RLJ Lodging is expected to generate 2.21 times less return on investment than ARB IOT. But when comparing it to its historical volatility, RLJ Lodging Trust is 7.75 times less risky than ARB IOT. It trades about 0.3 of its potential returns per unit of risk. ARB IOT Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 47.00 in ARB IOT Group on August 31, 2024 and sell it today you would earn a total of 4.00 from holding ARB IOT Group or generate 8.51% 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. ARB IOT Group
Performance |
| Timeline |
| RLJ Lodging Trust |
| ARB IOT Group |
RLJ Lodging and ARB IOT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and ARB IOT
The main advantage of trading using opposite RLJ Lodging and ARB IOT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, ARB IOT 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 ARB IOT will offset losses from the drop in ARB IOT's long position.| RLJ Lodging vs. Sunstone Hotel Investors | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Ryman Hospitality Properties | RLJ Lodging vs. Chatham Lodging Trust |
| ARB IOT vs. RLJ Lodging Trust | ARB IOT vs. Aquagold International | ARB IOT vs. Stepstone Group | ARB IOT vs. Morningstar Unconstrained Allocation |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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