Correlation Between RLJ Lodging and Diamondrock Hospitality
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Diamondrock Hospitality 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 Diamondrock Hospitality 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 Diamondrock Hospitality, you can compare the effects of market volatilities on RLJ Lodging and Diamondrock Hospitality 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 Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Diamondrock Hospitality.
Diversification Opportunities for RLJ Lodging and Diamondrock Hospitality
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between RLJ and Diamondrock is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Diamondrock Hospitality go up and down completely randomly.
Pair Corralation between RLJ Lodging and Diamondrock Hospitality
Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Diamondrock Hospitality. In addition to that, RLJ Lodging is 1.21 times more volatile than Diamondrock Hospitality. It trades about -0.04 of its total potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.04 per unit of volatility. If you would invest 892.00 in Diamondrock Hospitality on November 2, 2024 and sell it today you would lose (8.00) from holding Diamondrock Hospitality or give up 0.9% 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. Diamondrock Hospitality
Performance |
| Timeline |
| RLJ Lodging Trust |
| Diamondrock Hospitality |
RLJ Lodging and Diamondrock Hospitality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and Diamondrock Hospitality
The main advantage of trading using opposite RLJ Lodging and Diamondrock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Diamondrock Hospitality 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 Diamondrock Hospitality will offset losses from the drop in Diamondrock Hospitality'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 |
| Diamondrock Hospitality vs. Summit Hotel Properties | Diamondrock Hospitality vs. RLJ Lodging Trust | Diamondrock Hospitality vs. Pebblebrook Hotel Trust | Diamondrock Hospitality vs. Sunstone Hotel 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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