Correlation Between Choice Hotels and SK TELECOM

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

Diversification Opportunities for Choice Hotels and SK TELECOM

0.73

Correlation Coefficient

Choice Hotels  SK TELECOM

Poor diversification

The 3 months correlation between Choice and KMBA is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and SK TELECOM TDADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK TELECOM TDADR 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 SK TELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK TELECOM TDADR has no effect on the direction of Choice Hotels i.e., Choice Hotels and SK TELECOM go up and down completely randomly.

Pair Corralation between Choice Hotels and SK TELECOM

Assuming the 90 days horizon Choice Hotels International is expected to under-perform the SK TELECOM. In addition to that, Choice Hotels is 1.1 times more volatile than SK TELECOM TDADR. It trades about -0.08 of its total potential returns per unit of risk. SK TELECOM TDADR is currently generating about -0.04 per unit of volatility. If you would invest  2,020  in SK TELECOM TDADR on December 28, 2024 and sell it today you would lose (100.00) from holding SK TELECOM TDADR or give up 4.95% 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.  SK TELECOM TDADR

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 fragile 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.

SK TELECOM TDADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK TELECOM TDADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, SK TELECOM is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Choice Hotels and SK TELECOM

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

The idea behind Choice Hotels International and SK TELECOM TDADR 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.