Correlation Between Chimera Investment and RLJ Lodging

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

By analyzing existing cross correlation between Chimera Investment and RLJ Lodging Trust, you can compare the effects of market volatilities on Chimera Investment and RLJ Lodging 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 Chimera Investment with a short position of RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chimera Investment and RLJ Lodging.

Diversification Opportunities for Chimera Investment and RLJ Lodging

0.48

Correlation Coefficient

Chimera Investment  RLJ Lodging

Very weak diversification

The 3 months correlation between Chimera and RLJ is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Chimera Investment and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust and Chimera Investment 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 Chimera Investment are associated (or correlated) with RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Chimera Investment i.e., Chimera Investment and RLJ Lodging go up and down completely randomly.

Pair Corralation between Chimera Investment and RLJ Lodging

Assuming the 90 days trading horizon Chimera Investment is expected to under-perform the RLJ Lodging. But the preferred stock apears to be less risky and, when comparing its historical volatility, Chimera Investment is 1.26 times less risky than RLJ Lodging. The preferred stock trades about -0.04 of its potential returns per unit of risk. The RLJ Lodging Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,473  in RLJ Lodging Trust on December 29, 2024 and sell it today you would earn a total of  35.00  from holding RLJ Lodging Trust or generate 1.42% return on investment over 90 days.

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

Chimera Investment  vs.  RLJ Lodging Trust

Chimera Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chimera Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Chimera Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RLJ Lodging Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, RLJ Lodging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chimera Investment and RLJ Lodging

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

The idea behind Chimera Investment and RLJ Lodging Trust 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.