Correlation Between American Public and Host Hotels

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

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

Diversification Opportunities for American Public and Host Hotels

0.65

Correlation Coefficient

American Public  Host Hotels

Poor diversification

The 3 months correlation between American and Host is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education 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 American Public 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 American Public Education 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 American Public i.e., American Public and Host Hotels go up and down completely randomly.

Pair Corralation between American Public and Host Hotels

Assuming the 90 days horizon American Public Education is expected to generate 1.71 times more return on investment than Host Hotels. However, American Public is 1.71 times more volatile than Host Hotels Resorts. It trades about 0.24 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about 0.03 per unit of risk. If you would invest  1,360  in American Public Education on October 26, 2024 and sell it today you would earn a total of  700.00  from holding American Public Education or generate 51.47% return on investment over 90 days.

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

American Public Education  vs.  Host Hotels Resorts

American Public Education

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Host Hotels Resorts

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Host Hotels is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Public and Host Hotels

The main advantage of trading using opposite American Public and Host Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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 American Public Education 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.