Correlation Between National Retail and Choice Hotels

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

By analyzing existing cross correlation between National Retail Properties and Choice Hotels International, you can compare the effects of market volatilities on National Retail and Choice Hotels 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 National Retail with a short position of Choice Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Choice Hotels.

Diversification Opportunities for National Retail and Choice Hotels

-0.6

Correlation Coefficient

National Retail  Choice Hotels

Excellent diversification

The 3 months correlation between National and Choice is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern and National Retail 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 National Retail Properties are associated (or correlated) with Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of National Retail i.e., National Retail and Choice Hotels go up and down completely randomly.

Pair Corralation between National Retail and Choice Hotels

Assuming the 90 days trading horizon National Retail Properties is expected to under-perform the Choice Hotels. But the stock apears to be less risky and, when comparing its historical volatility, National Retail Properties is 1.05 times less risky than Choice Hotels. The stock trades about -0.09 of its potential returns per unit of risk. The Choice Hotels International is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  11,900  in Choice Hotels International on October 5, 2024 and sell it today you would earn a total of  1,400  from holding Choice Hotels International or generate 11.76% return on investment over 90 days.

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

National Retail Properties  vs.  Choice Hotels International

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Choice Hotels Intern

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Retail and Choice Hotels

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

The idea behind National Retail Properties and Choice Hotels International 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.