Correlation Between DiamondRock Hospitality and Sunstone Hotel

Can any of the company-specific risk be diversified away by investing in both DiamondRock Hospitality and Sunstone Hotel 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 DiamondRock Hospitality and Sunstone Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DiamondRock Hospitality and Sunstone Hotel Investors, you can compare the effects of market volatilities on DiamondRock Hospitality and Sunstone Hotel 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 DiamondRock Hospitality with a short position of Sunstone Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of DiamondRock Hospitality and Sunstone Hotel.

Diversification Opportunities for DiamondRock Hospitality and Sunstone Hotel

0.73

Correlation Coefficient

DiamondRock Hospitality  Sunstone Hotel

Poor diversification

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

Pair Corralation between DiamondRock Hospitality and Sunstone Hotel

Assuming the 90 days trading horizon DiamondRock Hospitality is expected to generate 1.43 times less return on investment than Sunstone Hotel. But when comparing it to its historical volatility, DiamondRock Hospitality is 2.78 times less risky than Sunstone Hotel. It trades about 0.24 of its potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,995  in Sunstone Hotel Investors on September 1, 2024 and sell it today you would earn a total of  146.00  from holding Sunstone Hotel Investors or generate 7.32% return on investment over 90 days.

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

DiamondRock Hospitality  vs.  Sunstone Hotel Investors

DiamondRock Hospitality

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, DiamondRock Hospitality is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Sunstone Hotel Investors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Sunstone Hotel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with DiamondRock Hospitality and Sunstone Hotel

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

The idea behind DiamondRock Hospitality and Sunstone Hotel Investors 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.