Correlation Between Chatham Lodging and RLJ Lodging

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

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

Diversification Opportunities for Chatham Lodging and RLJ Lodging

0.32

Correlation Coefficient

Chatham Lodging  RLJ Lodging

Weak diversification

The 3 months correlation between Chatham and RLJ is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Lodging Trust 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 Chatham Lodging 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 Chatham Lodging Trust 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 Chatham Lodging i.e., Chatham Lodging and RLJ Lodging go up and down completely randomly.

Pair Corralation between Chatham Lodging and RLJ Lodging

Given the investment horizon of 90 days Chatham Lodging Trust is expected to under-perform the RLJ Lodging. In addition to that, Chatham Lodging is 4.13 times more volatile than RLJ Lodging Trust. It trades about -0.22 of its total potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.07 per unit of volatility. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Chatham Lodging Trust  vs.  RLJ Lodging Trust

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. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 Chatham Lodging and RLJ Lodging

The main advantage of trading using opposite Chatham Lodging and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chatham Lodging 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 Chatham Lodging Trust 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.