Correlation Between Choice Hotels and Werner Enterprises

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

Diversification Opportunities for Choice Hotels and Werner Enterprises

0.88

Correlation Coefficient

Choice Hotels  Werner Enterprises

Very poor diversification

The 3 months correlation between Choice and Werner is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Werner Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Werner Enterprises 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 Werner Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Werner Enterprises has no effect on the direction of Choice Hotels i.e., Choice Hotels and Werner Enterprises go up and down completely randomly.

Pair Corralation between Choice Hotels and Werner Enterprises

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.89 times more return on investment than Werner Enterprises. However, Choice Hotels International is 1.12 times less risky than Werner Enterprises. It trades about 0.14 of its potential returns per unit of risk. Werner Enterprises is currently generating about 0.03 per unit of risk. If you would invest  11,671  in Choice Hotels International on September 27, 2024 and sell it today you would earn a total of  1,729  from holding Choice Hotels International or generate 14.81% return on investment over 90 days.

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

Choice Hotels International  vs.  Werner Enterprises

Choice Hotels Intern

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Werner Enterprises

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Werner Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Werner Enterprises is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Choice Hotels and Werner Enterprises

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

The idea behind Choice Hotels International and Werner Enterprises 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.