Correlation Between Choice Hotels and INFORMATION SVC

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

Diversification Opportunities for Choice Hotels and INFORMATION SVC

0.62

Correlation Coefficient

Choice Hotels  INFORMATION SVC

Poor diversification

The 3 months correlation between Choice and INFORMATION is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and INFORMATION SVC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INFORMATION SVC GRP 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 INFORMATION SVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INFORMATION SVC GRP has no effect on the direction of Choice Hotels i.e., Choice Hotels and INFORMATION SVC go up and down completely randomly.

Pair Corralation between Choice Hotels and INFORMATION SVC

Assuming the 90 days horizon Choice Hotels International is expected to generate 0.69 times more return on investment than INFORMATION SVC. However, Choice Hotels International is 1.44 times less risky than INFORMATION SVC. It trades about 0.22 of its potential returns per unit of risk. INFORMATION SVC GRP is currently generating about 0.08 per unit of risk. If you would invest  11,372  in Choice Hotels International on August 31, 2024 and sell it today you would earn a total of  2,728  from holding Choice Hotels International or generate 23.99% return on investment over 90 days.

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

Choice Hotels International  vs.  INFORMATION SVC GRP

Choice Hotels Intern

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 17 (%) 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.

INFORMATION SVC GRP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in INFORMATION SVC GRP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INFORMATION SVC may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Choice Hotels and INFORMATION SVC

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

The idea behind Choice Hotels International and INFORMATION SVC GRP 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 Anywhere module to track or share privately all of your investments from the convenience of any device.