Correlation Between Ashford Hospitality and Holiday Island

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

By analyzing existing cross correlation between Ashford Hospitality Trust and Holiday Island Holdings, you can compare the effects of market volatilities on Ashford Hospitality and Holiday Island 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 Ashford Hospitality with a short position of Holiday Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ashford Hospitality and Holiday Island.

Diversification Opportunities for Ashford Hospitality and Holiday Island

0.54

Correlation Coefficient

Ashford Hospitality  Holiday Island

Very weak diversification

The 3 months correlation between Ashford and Holiday is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ashford Hospitality Trust and Holiday Island Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Island Holdings and Ashford Hospitality 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 Ashford Hospitality Trust are associated (or correlated) with Holiday Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Island Holdings has no effect on the direction of Ashford Hospitality i.e., Ashford Hospitality and Holiday Island go up and down completely randomly.

Pair Corralation between Ashford Hospitality and Holiday Island

Assuming the 90 days trading horizon Ashford Hospitality Trust is expected to under-perform the Holiday Island. But the preferred stock apears to be less risky and, when comparing its historical volatility, Ashford Hospitality Trust is 5.69 times less risky than Holiday Island. The preferred stock trades about -0.08 of its potential returns per unit of risk. The Holiday Island Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2.70  in Holiday Island Holdings on September 4, 2024 and sell it today you would lose (1.19) from holding Holiday Island Holdings or give up 44.07% of portfolio value over 90 days.

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

Ashford Hospitality Trust  vs.  Holiday Island Holdings

Ashford Hospitality Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ashford Hospitality Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Preferred Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Holiday Island Holdings

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Holiday Island Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Holiday Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ashford Hospitality and Holiday Island

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

The idea behind Ashford Hospitality Trust and Holiday Island Holdings 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.