Correlation Between Yum China and RLJ Lodging
Can any of the company-specific risk be diversified away by investing in both Yum China 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 Yum China and RLJ Lodging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum China Holdings and RLJ Lodging Trust, you can compare the effects of market volatilities on Yum China 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 Yum China with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and RLJ Lodging.
Diversification Opportunities for Yum China and RLJ Lodging
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Yum and RLJ is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings 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 Yum China 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 Yum China Holdings 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 Yum China i.e., Yum China and RLJ Lodging go up and down completely randomly.
Pair Corralation between Yum China and RLJ Lodging
Given the investment horizon of 90 days Yum China is expected to generate 3.7 times less return on investment than RLJ Lodging. In addition to that, Yum China is 1.6 times more volatile than RLJ Lodging Trust. It trades about 0.08 of its total potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.47 per unit of volatility. If you would invest 877.00 in RLJ Lodging Trust on September 2, 2024 and sell it today you would earn a total of 144.00 from holding RLJ Lodging Trust or generate 16.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum China Holdings vs. RLJ Lodging Trust
Performance |
| Timeline |
| Yum China Holdings |
| RLJ Lodging Trust |
Yum China and RLJ Lodging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum China and RLJ Lodging
The main advantage of trading using opposite Yum China and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum China 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.The idea behind Yum China Holdings and RLJ Lodging Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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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