Correlation Between Choice Hotels and Hyatt Hotels

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

Diversification Opportunities for Choice Hotels and Hyatt Hotels

0.7

Correlation Coefficient

Choice Hotels  Hyatt Hotels

Poor diversification

The 3 months correlation between Choice and Hyatt is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Hyatt Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyatt Hotels 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 Hyatt Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyatt Hotels has no effect on the direction of Choice Hotels i.e., Choice Hotels and Hyatt Hotels go up and down completely randomly.

Pair Corralation between Choice Hotels and Hyatt Hotels

Considering the 90-day investment horizon Choice Hotels International is expected to generate 0.8 times more return on investment than Hyatt Hotels. However, Choice Hotels International is 1.26 times less risky than Hyatt Hotels. It trades about -0.05 of its potential returns per unit of risk. Hyatt Hotels is currently generating about -0.18 per unit of risk. If you would invest  14,053  in Choice Hotels International on December 27, 2024 and sell it today you would lose (737.00) from holding Choice Hotels International or give up 5.24% of portfolio value over 90 days.

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

Choice Hotels International  vs.  Hyatt Hotels

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.

Hyatt Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hyatt Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Choice Hotels and Hyatt Hotels

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

The idea behind Choice Hotels International and Hyatt Hotels 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.