Correlation Between Choice Hotels and Aeroports

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

By analyzing existing cross correlation between Choice Hotels International and Aeroports de Paris, you can compare the effects of market volatilities on Choice Hotels and Aeroports 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 Choice Hotels with a short position of Aeroports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and Aeroports.

Diversification Opportunities for Choice Hotels and Aeroports

-0.81

Correlation Coefficient

Choice Hotels  Aeroports

Pay attention - limited upside

The 3 months correlation between Choice and Aeroports is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Aeroports de Paris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeroports de Paris and Choice Hotels 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 Choice Hotels International are associated (or correlated) with Aeroports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeroports de Paris has no effect on the direction of Choice Hotels i.e., Choice Hotels and Aeroports go up and down completely randomly.

Pair Corralation between Choice Hotels and Aeroports

Considering the 90-day investment horizon Choice Hotels International is expected to generate 0.73 times more return on investment than Aeroports. However, Choice Hotels International is 1.37 times less risky than Aeroports. It trades about 0.18 of its potential returns per unit of risk. Aeroports de Paris is currently generating about -0.05 per unit of risk. If you would invest  12,731  in Choice Hotels International on August 30, 2024 and sell it today you would earn a total of  2,330  from holding Choice Hotels International or generate 18.3% return on investment over 90 days.

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

Choice Hotels International  vs.  Aeroports de Paris

Choice Hotels Intern

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Choice Hotels demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Aeroports de Paris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeroports de Paris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Choice Hotels and Aeroports

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

The idea behind Choice Hotels International and Aeroports de Paris 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.