Correlation Between Choice Hotels and Xenia Hotels

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

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

Diversification Opportunities for Choice Hotels and Xenia Hotels

0.85

Correlation Coefficient

Choice Hotels  Xenia Hotels

Very poor diversification

The 3 months correlation between Choice and Xenia is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Xenia Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xenia Hotels Resorts and Choice Hotels 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 Choice Hotels International are associated (or correlated) with Xenia Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xenia Hotels Resorts has no effect on the direction of Choice Hotels i.e., Choice Hotels and Xenia Hotels go up and down completely randomly.

Pair Corralation between Choice Hotels and Xenia Hotels

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.74 times more return on investment than Xenia Hotels. However, Choice Hotels International is 1.35 times less risky than Xenia Hotels. It trades about 0.21 of its potential returns per unit of risk. Xenia Hotels Resorts is currently generating about 0.1 per unit of risk. If you would invest  11,372  in Choice Hotels International on September 2, 2024 and sell it today you would earn a total of  2,728  from holding Choice Hotels International or generate 23.99% return on investment over 90 days.

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

Choice Hotels International  vs.  Xenia Hotels Resorts

Choice Hotels Intern

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Xenia Hotels Resorts

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xenia Hotels Resorts are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Xenia Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and Xenia Hotels

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

The idea behind Choice Hotels International and Xenia Hotels Resorts 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.