Correlation Between Host Hotels and Rheinmetall

Can any of the company-specific risk be diversified away by investing in both Host Hotels and Rheinmetall 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 Host Hotels and Rheinmetall into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Host Hotels Resorts and Rheinmetall AG, you can compare the effects of market volatilities on Host Hotels and Rheinmetall 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 Host Hotels with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Host Hotels and Rheinmetall.

Diversification Opportunities for Host Hotels and Rheinmetall

0.63

Correlation Coefficient

Host Hotels  Rheinmetall

Poor diversification

The 3 months correlation between Host and Rheinmetall is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and Host Hotels 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 Host Hotels Resorts are associated (or correlated) with Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Host Hotels i.e., Host Hotels and Rheinmetall go up and down completely randomly.

Pair Corralation between Host Hotels and Rheinmetall

Assuming the 90 days trading horizon Host Hotels Resorts is expected to under-perform the Rheinmetall. But the stock apears to be less risky and, when comparing its historical volatility, Host Hotels Resorts is 1.37 times less risky than Rheinmetall. The stock trades about -0.02 of its potential returns per unit of risk. The Rheinmetall AG is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  31,204  in Rheinmetall AG on October 9, 2024 and sell it today you would earn a total of  30,256  from holding Rheinmetall AG or generate 96.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Host Hotels Resorts  vs.  Rheinmetall AG

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Host Hotels is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Rheinmetall AG

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Host Hotels and Rheinmetall

The main advantage of trading using opposite Host Hotels and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Host Hotels position performs unexpectedly, Rheinmetall 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 Rheinmetall will offset losses from the drop in Rheinmetall's long position.

The idea behind Host Hotels Resorts and Rheinmetall AG 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.