Correlation Between Wells Fargo and RLJ Lodging
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and RLJ Lodging 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 Wells Fargo and RLJ Lodging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and RLJ Lodging Trust, you can compare the effects of market volatilities on Wells Fargo and RLJ Lodging 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 Wells Fargo with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and RLJ Lodging.
Diversification Opportunities for Wells Fargo and RLJ Lodging
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wells and RLJ is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust and Wells Fargo 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 Wells Fargo are associated (or correlated) with RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Wells Fargo i.e., Wells Fargo and RLJ Lodging go up and down completely randomly.
Pair Corralation between Wells Fargo and RLJ Lodging
Considering the 90-day investment horizon Wells Fargo is expected to generate 1.49 times more return on investment than RLJ Lodging. However, Wells Fargo is 1.49 times more volatile than RLJ Lodging Trust. It trades about 0.19 of its potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.1 per unit of risk. If you would invest 5,804 in Wells Fargo on September 2, 2024 and sell it today you would earn a total of 1,813 from holding Wells Fargo or generate 31.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. RLJ Lodging Trust
Performance |
| Timeline |
| Wells Fargo |
| RLJ Lodging Trust |
Wells Fargo and RLJ Lodging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and RLJ Lodging
The main advantage of trading using opposite Wells Fargo and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, RLJ Lodging 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 RLJ Lodging will offset losses from the drop in RLJ Lodging's long position.| Wells Fargo vs. Citigroup | Wells Fargo vs. Nu Holdings | Wells Fargo vs. HSBC Holdings PLC | Wells Fargo vs. Bank of Montreal |
| RLJ Lodging vs. Sunstone Hotel Investors | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Ryman Hospitality Properties |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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