Correlation Between Choice Hotels and Medicover

Can any of the company-specific risk be diversified away by investing in both Choice Hotels and Medicover 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 Medicover 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 Medicover AB, you can compare the effects of market volatilities on Choice Hotels and Medicover 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 Medicover. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and Medicover.

Diversification Opportunities for Choice Hotels and Medicover

-0.65

Correlation Coefficient

Choice Hotels  Medicover

Excellent diversification

The 3 months correlation between Choice and Medicover is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Medicover AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medicover AB 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 Medicover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medicover AB has no effect on the direction of Choice Hotels i.e., Choice Hotels and Medicover go up and down completely randomly.

Pair Corralation between Choice Hotels and Medicover

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.74 times more return on investment than Medicover. However, Choice Hotels International is 1.35 times less risky than Medicover. It trades about 0.03 of its potential returns per unit of risk. Medicover AB is currently generating about 0.01 per unit of risk. If you would invest  11,189  in Choice Hotels International on October 5, 2024 and sell it today you would earn a total of  2,111  from holding Choice Hotels International or generate 18.87% return on investment over 90 days.

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

Choice Hotels International  vs.  Medicover AB

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.

Medicover AB

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Medicover AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Medicover is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Choice Hotels and Medicover

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

The idea behind Choice Hotels International and Medicover AB 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.