Correlation Between RLJ Lodging and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Wells Fargo 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 Wells Fargo 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 Wells Fargo, you can compare the effects of market volatilities on RLJ Lodging and Wells Fargo 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 Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Wells Fargo.
Diversification Opportunities for RLJ Lodging and Wells Fargo
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between RLJ and Wells is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Wells Fargo go up and down completely randomly.
Pair Corralation between RLJ Lodging and Wells Fargo
Considering the 90-day investment horizon RLJ Lodging is expected to generate 1.16 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, RLJ Lodging Trust is 2.03 times less risky than Wells Fargo. It trades about 0.47 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 6,431 in Wells Fargo on September 2, 2024 and sell it today you would earn a total of 1,186 from holding Wells Fargo or generate 18.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. Wells Fargo
Performance |
| Timeline |
| RLJ Lodging Trust |
| Wells Fargo |
RLJ Lodging and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and Wells Fargo
The main advantage of trading using opposite RLJ Lodging and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Wells Fargo 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 Wells Fargo will offset losses from the drop in Wells Fargo'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 |
| Wells Fargo vs. Citigroup | Wells Fargo vs. Nu Holdings | Wells Fargo vs. HSBC Holdings PLC | Wells Fargo vs. Bank of Montreal |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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