Correlation Between Ashford Hospitality and RLJ Lodging

Can any of the company-specific risk be diversified away by investing in both Ashford Hospitality 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 Ashford Hospitality and RLJ Lodging 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 RLJ Lodging Trust, you can compare the effects of market volatilities on Ashford Hospitality 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 Ashford Hospitality with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ashford Hospitality and RLJ Lodging.

Diversification Opportunities for Ashford Hospitality and RLJ Lodging

0.33

Correlation Coefficient

Ashford Hospitality  RLJ Lodging

Weak diversification

The 3 months correlation between Ashford and RLJ is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ashford Hospitality Trust 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 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 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 Ashford Hospitality i.e., Ashford Hospitality and RLJ Lodging go up and down completely randomly.

Pair Corralation between Ashford Hospitality and RLJ Lodging

Assuming the 90 days trading horizon Ashford Hospitality Trust is expected to generate 6.53 times more return on investment than RLJ Lodging. However, Ashford Hospitality is 6.53 times more volatile than RLJ Lodging Trust. It trades about 0.02 of its potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.06 per unit of risk. If you would invest  1,485  in Ashford Hospitality Trust on November 20, 2024 and sell it today you would earn a total of  65.00  from holding Ashford Hospitality Trust or generate 4.38% return on investment over 90 days.

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

Ashford Hospitality Trust  vs.  RLJ Lodging Trust

Ashford Hospitality Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ashford Hospitality Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Ashford Hospitality may actually be approaching a critical reversion point that can send shares even higher in March 2025.

RLJ Lodging Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, RLJ Lodging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ashford Hospitality and RLJ Lodging

The main advantage of trading using opposite Ashford Hospitality and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ashford Hospitality 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 Ashford Hospitality Trust 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.

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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.