Correlation Between RLJ Lodging and Diversified Healthcare
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Diversified Healthcare 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 Diversified Healthcare 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 Diversified Healthcare Trust, you can compare the effects of market volatilities on RLJ Lodging and Diversified Healthcare 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 Diversified Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Diversified Healthcare.
Diversification Opportunities for RLJ Lodging and Diversified Healthcare
-0.72 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between RLJ and Diversified is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Diversified Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Healthcare 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 Diversified Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Healthcare has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Diversified Healthcare go up and down completely randomly.
Pair Corralation between RLJ Lodging and Diversified Healthcare
Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Diversified Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 2.84 times less risky than Diversified Healthcare. The stock trades about -0.11 of its potential returns per unit of risk. The Diversified Healthcare Trust is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 229.00 in Diversified Healthcare Trust on November 1, 2024 and sell it today you would earn a total of 13.00 from holding Diversified Healthcare Trust or generate 5.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. Diversified Healthcare Trust
Performance |
| Timeline |
| RLJ Lodging Trust |
| Diversified Healthcare |
RLJ Lodging and Diversified Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and Diversified Healthcare
The main advantage of trading using opposite RLJ Lodging and Diversified Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Diversified Healthcare 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 Diversified Healthcare will offset losses from the drop in Diversified Healthcare'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 |
| Diversified Healthcare vs. Global Medical REIT | Diversified Healthcare vs. Healthpeak Properties | Diversified Healthcare vs. Ventas Inc | Diversified Healthcare vs. National Health Investors |
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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