Correlation Between Visa and Diamondrock Hospitality
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and Diamondrock Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and Diamondrock Hospitality, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Diamondrock Hospitality.
Diversification Opportunities for Visa and Diamondrock Hospitality
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Visa and Diamondrock is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and Visa 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 Visa Class A 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 Visa i.e., Visa and Diamondrock Hospitality go up and down completely randomly.
Pair Corralation between Visa and Diamondrock Hospitality
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.69 times more return on investment than Diamondrock Hospitality. However, Visa Class A is 1.46 times less risky than Diamondrock Hospitality. It trades about 0.37 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about 0.13 per unit of risk. If you would invest 28,365 in Visa Class A on August 27, 2024 and sell it today you would earn a total of 2,954 from holding Visa Class A or generate 10.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Diamondrock Hospitality
Performance |
| Timeline |
| Visa Class A |
| Diamondrock Hospitality |
Visa and Diamondrock Hospitality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Diamondrock Hospitality
The main advantage of trading using opposite Visa and Diamondrock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.| Visa vs. American Express | Visa vs. Morningstar Unconstrained Allocation | Visa vs. Sitka Gold Corp | Visa vs. MSCI ACWI exAUCONSUMER |
| 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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