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

0.94

Correlation Coefficient

Chatham Lodging  RLJ Lodging

Almost no diversification

The 3 months correlation between Chatham and RLJ is 0.94. 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. But the stock apears to be less risky and, when comparing its historical volatility, Chatham Lodging Trust is 1.17 times less risky than RLJ Lodging. The stock trades about -0.21 of its potential returns per unit of risk. The RLJ Lodging Trust is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  1,000.00  in RLJ Lodging Trust on December 27, 2024 and sell it today you would lose (181.00) from holding RLJ Lodging Trust or give up 18.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
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

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's essential indicators remain relatively steady which may send shares a bit higher in April 2025. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.