Correlation Between Choice Hotels and Vonovia SE

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

Diversification Opportunities for Choice Hotels and Vonovia SE

0.32

Correlation Coefficient

Choice Hotels  Vonovia SE

Weak diversification

The 3 months correlation between Choice and Vonovia is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Vonovia SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vonovia SE 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 Vonovia SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vonovia SE has no effect on the direction of Choice Hotels i.e., Choice Hotels and Vonovia SE go up and down completely randomly.

Pair Corralation between Choice Hotels and Vonovia SE

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.83 times more return on investment than Vonovia SE. However, Choice Hotels International is 1.2 times less risky than Vonovia SE. It trades about -0.04 of its potential returns per unit of risk. Vonovia SE is currently generating about -0.07 per unit of risk. If you would invest  14,170  in Choice Hotels International on December 3, 2024 and sell it today you would lose (570.00) from holding Choice Hotels International or give up 4.02% of portfolio value over 90 days.

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

Choice Hotels International  vs.  Vonovia SE

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 nearly stable basic indicators, Choice Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vonovia SE

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vonovia SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Choice Hotels and Vonovia SE

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

The idea behind Choice Hotels International and Vonovia SE 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.