Correlation Between American Tower and RLJ Lodging

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

By analyzing existing cross correlation between American Tower Corp and RLJ Lodging Trust, you can compare the effects of market volatilities on American Tower 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 American Tower with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Tower and RLJ Lodging.

Diversification Opportunities for American Tower and RLJ Lodging

-0.56

Correlation Coefficient

American Tower  RLJ Lodging

Excellent diversification

The 3 months correlation between American and RLJ is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding American Tower Corp 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 American Tower 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 Tower Corp 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 American Tower i.e., American Tower and RLJ Lodging go up and down completely randomly.

Pair Corralation between American Tower and RLJ Lodging

Considering the 90-day investment horizon American Tower Corp is expected to under-perform the RLJ Lodging. But the stock apears to be less risky and, when comparing its historical volatility, American Tower Corp is 1.0 times less risky than RLJ Lodging. The stock trades about -0.05 of its potential returns per unit of risk. The RLJ Lodging Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  935.00  in RLJ Lodging Trust on August 30, 2024 and sell it today you would earn a total of  79.00  from holding RLJ Lodging Trust or generate 8.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

American Tower Corp  vs.  RLJ Lodging Trust

American Tower Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

RLJ Lodging Trust

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent essential indicators, RLJ Lodging may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Tower and RLJ Lodging

The main advantage of trading using opposite American Tower and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Tower 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 American Tower Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.