Correlation Between RLJ Lodging and BP PLC
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and BP PLC 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 BP PLC 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 BP PLC ADR, you can compare the effects of market volatilities on RLJ Lodging and BP PLC 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 BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and BP PLC.
Diversification Opportunities for RLJ Lodging and BP PLC
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between RLJ and BP PLC is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and BP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC ADR 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 BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC ADR has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and BP PLC go up and down completely randomly.
Pair Corralation between RLJ Lodging and BP PLC
Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the BP PLC. In addition to that, RLJ Lodging is 1.14 times more volatile than BP PLC ADR. It trades about -0.4 of its total potential returns per unit of risk. BP PLC ADR is currently generating about -0.17 per unit of volatility. If you would invest 3,171 in BP PLC ADR on January 5, 2025 and sell it today you would lose (333.00) from holding BP PLC ADR or give up 10.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. BP PLC ADR
Performance |
| Timeline |
| RLJ Lodging Trust |
| BP PLC ADR |
RLJ Lodging and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and BP PLC
The main advantage of trading using opposite RLJ Lodging and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, BP PLC 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 BP PLC will offset losses from the drop in BP PLC's long position.| RLJ Lodging vs. Sunstone Hotel Investors | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Ryman Hospitality Properties |
| BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Chevron Corp | BP PLC vs. Exxon Mobil Corp | BP PLC vs. Equinor ASA ADR |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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