Correlation Between City Office and Chatham Lodging

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

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

Diversification Opportunities for City Office and Chatham Lodging

0.68

Correlation Coefficient

City Office  Chatham Lodging

Poor diversification

The 3 months correlation between City and Chatham is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding City Office REIT and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust and City Office 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 City Office REIT are associated (or correlated) with Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of City Office i.e., City Office and Chatham Lodging go up and down completely randomly.

Pair Corralation between City Office and Chatham Lodging

Assuming the 90 days trading horizon City Office REIT is expected to under-perform the Chatham Lodging. But the preferred stock apears to be less risky and, when comparing its historical volatility, City Office REIT is 1.13 times less risky than Chatham Lodging. The preferred stock trades about -0.11 of its potential returns per unit of risk. The Chatham Lodging Trust is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,223  in Chatham Lodging Trust on December 30, 2024 and sell it today you would lose (144.00) from holding Chatham Lodging Trust or give up 6.48% of portfolio value over 90 days.

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

City Office REIT  vs.  Chatham Lodging Trust

City Office REIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Office REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Chatham Lodging Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chatham Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with City Office and Chatham Lodging

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

The idea behind City Office REIT and Chatham 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.