Correlation Between Air Lease and Host Hotels

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

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

Diversification Opportunities for Air Lease and Host Hotels

0.86

Correlation Coefficient

Air Lease  Host Hotels

Very poor diversification

The 3 months correlation between Air and Host is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease 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 Air Lease 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 Air Lease 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 Air Lease i.e., Air Lease and Host Hotels go up and down completely randomly.

Pair Corralation between Air Lease and Host Hotels

Assuming the 90 days trading horizon Air Lease is expected to generate 0.57 times more return on investment than Host Hotels. However, Air Lease is 1.75 times less risky than Host Hotels. It trades about -0.2 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about -0.18 per unit of risk. If you would invest  4,718  in Air Lease on October 10, 2024 and sell it today you would lose (158.00) from holding Air Lease or give up 3.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

Air Lease  vs.  Host Hotels Resorts

Air Lease

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Air Lease reported solid returns over the last few months and may actually be approaching a breakup point.

Host Hotels Resorts

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Air Lease and Host Hotels

The main advantage of trading using opposite Air Lease and Host Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Lease 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 Air Lease 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.