Correlation Between Choice Hotels and Solution Financial

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

Diversification Opportunities for Choice Hotels and Solution Financial

-0.14

Correlation Coefficient

Choice Hotels  Solution Financial

Good diversification

The 3 months correlation between Choice and Solution is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Solution Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solution Financial 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 Solution Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solution Financial has no effect on the direction of Choice Hotels i.e., Choice Hotels and Solution Financial go up and down completely randomly.

Pair Corralation between Choice Hotels and Solution Financial

Considering the 90-day investment horizon Choice Hotels International is expected to under-perform the Solution Financial. But the stock apears to be less risky and, when comparing its historical volatility, Choice Hotels International is 1.49 times less risky than Solution Financial. The stock trades about -0.06 of its potential returns per unit of risk. The Solution Financial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Solution Financial on December 29, 2024 and sell it today you would earn a total of  0.00  from holding Solution Financial or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Choice Hotels International  vs.  Solution Financial

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.

Solution Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solution Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Solution Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Choice Hotels and Solution Financial

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

The idea behind Choice Hotels International and Solution Financial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.