Correlation Between Choice Hotels and Dillards

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

Diversification Opportunities for Choice Hotels and Dillards

0.85

Correlation Coefficient

Choice Hotels  Dillards

Very poor diversification

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

Pair Corralation between Choice Hotels and Dillards

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.62 times more return on investment than Dillards. However, Choice Hotels International is 1.61 times less risky than Dillards. It trades about -0.07 of its potential returns per unit of risk. Dillards is currently generating about -0.12 per unit of risk. If you would invest  13,272  in Choice Hotels International on December 30, 2024 and sell it today you would lose (1,072) from holding Choice Hotels International or give up 8.08% 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.  Dillards

Choice Hotels Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Dillards

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dillards has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Choice Hotels and Dillards

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

The idea behind Choice Hotels International and Dillards 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.