Correlation Between Choice Hotels and Arch Resources

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

Diversification Opportunities for Choice Hotels and Arch Resources

0.87

Correlation Coefficient

Choice Hotels  Arch Resources

Very poor diversification

The 3 months correlation between Choice and Arch is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Arch Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Resources 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 Arch Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Resources has no effect on the direction of Choice Hotels i.e., Choice Hotels and Arch Resources go up and down completely randomly.

Pair Corralation between Choice Hotels and Arch Resources

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.73 times more return on investment than Arch Resources. However, Choice Hotels International is 1.36 times less risky than Arch Resources. It trades about -0.07 of its potential returns per unit of risk. Arch Resources is currently generating about -0.24 per unit of risk. If you would invest  13,870  in Choice Hotels International on October 10, 2024 and sell it today you would lose (270.00) from holding Choice Hotels International or give up 1.95% of portfolio value over 90 days.

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

Choice Hotels International  vs.  Arch Resources

Choice Hotels Intern

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 11 (%) 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.

Arch Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Arch Resources may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Choice Hotels and Arch Resources

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

The idea behind Choice Hotels International and Arch Resources 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.