Correlation Between Federal National and Wyndham Hotels

Can any of the company-specific risk be diversified away by investing in both Federal National and Wyndham Hotels 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 Federal National and Wyndham Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federal National Mortgage and Wyndham Hotels Resorts, you can compare the effects of market volatilities on Federal National and Wyndham Hotels 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 Federal National with a short position of Wyndham Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Wyndham Hotels.

Diversification Opportunities for Federal National and Wyndham Hotels

0.39

Correlation Coefficient

Federal National  Wyndham Hotels

Weak diversification

The 3 months correlation between Federal and Wyndham is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts and Federal National 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 Federal National Mortgage are associated (or correlated) with Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of Federal National i.e., Federal National and Wyndham Hotels go up and down completely randomly.

Pair Corralation between Federal National and Wyndham Hotels

Given the investment horizon of 90 days Federal National Mortgage is expected to generate 6.12 times more return on investment than Wyndham Hotels. However, Federal National is 6.12 times more volatile than Wyndham Hotels Resorts. It trades about 0.17 of its potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about -0.09 per unit of risk. If you would invest  269.00  in Federal National Mortgage on December 20, 2024 and sell it today you would earn a total of  296.00  from holding Federal National Mortgage or generate 110.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Federal National Mortgage  vs.  Wyndham Hotels Resorts

Federal National Mortgage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Federal National sustained solid returns over the last few months and may actually be approaching a breakup point.

Wyndham Hotels Resorts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wyndham Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Federal National and Wyndham Hotels

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

The idea behind Federal National Mortgage and Wyndham Hotels Resorts 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.