Correlation Between Choice Hotels and Carnival

Can any of the company-specific risk be diversified away by investing in both Choice Hotels and Carnival 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 Carnival 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 Carnival, you can compare the effects of market volatilities on Choice Hotels and Carnival 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 Carnival. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and Carnival.

Diversification Opportunities for Choice Hotels and Carnival

0.8

Correlation Coefficient

Choice Hotels  Carnival

Very poor diversification

The 3 months correlation between Choice and Carnival is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival 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 Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival has no effect on the direction of Choice Hotels i.e., Choice Hotels and Carnival go up and down completely randomly.

Pair Corralation between Choice Hotels and Carnival

Considering the 90-day investment horizon Choice Hotels International is expected to generate 0.59 times more return on investment than Carnival. However, Choice Hotels International is 1.69 times less risky than Carnival. It trades about -0.06 of its potential returns per unit of risk. Carnival is currently generating about -0.1 per unit of risk. If you would invest  14,093  in Choice Hotels International on December 29, 2024 and sell it today you would lose (934.00) from holding Choice Hotels International or give up 6.63% of portfolio value over 90 days.

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

Choice Hotels International  vs.  Carnival

Choice Hotels Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Choice Hotels is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Choice Hotels and Carnival

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

The idea behind Choice Hotels International and Carnival 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..