Correlation Between Choice Hotels and Hilton Worldwide

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

Diversification Opportunities for Choice Hotels and Hilton Worldwide

0.96

Correlation Coefficient

Choice Hotels  Hilton Worldwide

Almost no diversification

The 3 months correlation between Choice and Hilton is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Hilton Worldwide Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilton Worldwide Holdings 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 Hilton Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilton Worldwide Holdings has no effect on the direction of Choice Hotels i.e., Choice Hotels and Hilton Worldwide go up and down completely randomly.

Pair Corralation between Choice Hotels and Hilton Worldwide

Assuming the 90 days horizon Choice Hotels is expected to generate 1.08 times less return on investment than Hilton Worldwide. But when comparing it to its historical volatility, Choice Hotels International is 1.55 times less risky than Hilton Worldwide. It trades about 0.19 of its potential returns per unit of risk. Hilton Worldwide Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  23,046  in Hilton Worldwide Holdings on September 12, 2024 and sell it today you would earn a total of  904.00  from holding Hilton Worldwide Holdings or generate 3.92% return on investment over 90 days.

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

Choice Hotels International  vs.  Hilton Worldwide Holdings

Choice Hotels Intern

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 20 (%) 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.

Hilton Worldwide Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Worldwide Holdings are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hilton Worldwide reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and Hilton Worldwide

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

The idea behind Choice Hotels International and Hilton Worldwide Holdings 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..