Correlation Between Choice Hotels and DexCom

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

Diversification Opportunities for Choice Hotels and DexCom

0.07

Correlation Coefficient

Choice Hotels  DexCom

Significant diversification

The 3 months correlation between Choice and DexCom is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and DexCom Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DexCom 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 DexCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DexCom Inc has no effect on the direction of Choice Hotels i.e., Choice Hotels and DexCom go up and down completely randomly.

Pair Corralation between Choice Hotels and DexCom

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.57 times more return on investment than DexCom. However, Choice Hotels International is 1.75 times less risky than DexCom. It trades about 0.04 of its potential returns per unit of risk. DexCom Inc is currently generating about 0.01 per unit of risk. If you would invest  10,676  in Choice Hotels International on October 23, 2024 and sell it today you would earn a total of  2,924  from holding Choice Hotels International or generate 27.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Choice Hotels International  vs.  DexCom Inc

Choice Hotels Intern

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

DexCom Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DexCom Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DexCom reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and DexCom

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

The idea behind Choice Hotels International and DexCom 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.