Correlation Between Choice Hotels and Amazon

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

Diversification Opportunities for Choice Hotels and Amazon

0.79

Correlation Coefficient

Choice Hotels  Amazon

Poor diversification

The 3 months correlation between Choice and Amazon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Choice Hotels i.e., Choice Hotels and Amazon go up and down completely randomly.

Pair Corralation between Choice Hotels and Amazon

Assuming the 90 days horizon Choice Hotels International is expected to under-perform the Amazon. In addition to that, Choice Hotels is 1.21 times more volatile than Amazon Inc. It trades about -0.03 of its total potential returns per unit of risk. Amazon Inc is currently generating about -0.01 per unit of volatility. If you would invest  21,660  in Amazon Inc on October 10, 2024 and sell it today you would lose (70.00) from holding Amazon Inc or give up 0.32% of portfolio value over 90 days.

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

Choice Hotels International  vs.  Amazon Inc

Choice Hotels Intern

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 12 (%) 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.

Amazon Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and Amazon

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

The idea behind Choice Hotels International and Amazon Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.