Correlation Between Diamondrock Hospitality and Chatham Lodging

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

By analyzing existing cross correlation between Diamondrock Hospitality and Chatham Lodging Trust, you can compare the effects of market volatilities on Diamondrock Hospitality and Chatham Lodging 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 Chatham Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondrock Hospitality and Chatham Lodging.

Diversification Opportunities for Diamondrock Hospitality and Chatham Lodging

0.97

Correlation Coefficient

Diamondrock Hospitality  Chatham Lodging

Almost no diversification

The 3 months correlation between Diamondrock and Chatham is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Diamondrock Hospitality and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust 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 Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of Diamondrock Hospitality i.e., Diamondrock Hospitality and Chatham Lodging go up and down completely randomly.

Pair Corralation between Diamondrock Hospitality and Chatham Lodging

Considering the 90-day investment horizon Diamondrock Hospitality is expected to generate 1.03 times more return on investment than Chatham Lodging. However, Diamondrock Hospitality is 1.03 times more volatile than Chatham Lodging Trust. It trades about -0.15 of its potential returns per unit of risk. Chatham Lodging Trust is currently generating about -0.22 per unit of risk. If you would invest  884.00  in Diamondrock Hospitality on December 30, 2024 and sell it today you would lose (120.00) from holding Diamondrock Hospitality or give up 13.57% of portfolio value over 90 days.

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

Diamondrock Hospitality  vs.  Chatham Lodging Trust

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Chatham Lodging Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chatham Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Diamondrock Hospitality and Chatham Lodging

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

The idea behind Diamondrock Hospitality and Chatham Lodging Trust 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.