Correlation Between CNH Industrial and Host Hotels

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

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

Diversification Opportunities for CNH Industrial and Host Hotels

0.5

Correlation Coefficient

CNH Industrial  Host Hotels

Very weak diversification

The 3 months correlation between CNH and Host is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Host Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Host Hotels Resorts and CNH Industrial 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 CNH Industrial NV are associated (or correlated) with Host Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Host Hotels Resorts has no effect on the direction of CNH Industrial i.e., CNH Industrial and Host Hotels go up and down completely randomly.

Pair Corralation between CNH Industrial and Host Hotels

Assuming the 90 days trading horizon CNH Industrial NV is expected to generate 2.17 times more return on investment than Host Hotels. However, CNH Industrial is 2.17 times more volatile than Host Hotels Resorts. It trades about 0.07 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about 0.12 per unit of risk. If you would invest  948.00  in CNH Industrial NV on September 8, 2024 and sell it today you would earn a total of  107.00  from holding CNH Industrial NV or generate 11.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

CNH Industrial NV  vs.  Host Hotels Resorts

CNH Industrial NV

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CNH Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Host Hotels Resorts

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CNH Industrial and Host Hotels

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

The idea behind CNH Industrial NV and Host Hotels Resorts 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.