Correlation Between Fortescue Metals and Sunstone Hotel

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

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

Diversification Opportunities for Fortescue Metals and Sunstone Hotel

-0.3

Correlation Coefficient

Fortescue Metals  Sunstone Hotel

Very good diversification

The 3 months correlation between Fortescue and Sunstone is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group 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 Fortescue Metals 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 Fortescue Metals Group 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 Fortescue Metals i.e., Fortescue Metals and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Fortescue Metals and Sunstone Hotel

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Sunstone Hotel. In addition to that, Fortescue Metals is 1.28 times more volatile than Sunstone Hotel Investors. It trades about -0.06 of its total potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.05 per unit of volatility. If you would invest  983.00  in Sunstone Hotel Investors on October 8, 2024 and sell it today you would earn a total of  157.00  from holding Sunstone Hotel Investors or generate 15.97% return on investment over 90 days.

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

Fortescue Metals Group  vs.  Sunstone Hotel Investors

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Sunstone Hotel Investors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortescue Metals and Sunstone Hotel

The main advantage of trading using opposite Fortescue Metals and Sunstone Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals 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 Fortescue Metals Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.