Correlation Between Diamondrock Hospitality and Murata Manufacturing

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

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

Diversification Opportunities for Diamondrock Hospitality and Murata Manufacturing

-0.7

Correlation Coefficient

Diamondrock Hospitality  Murata Manufacturing

Excellent diversification

The 3 months correlation between Diamondrock and Murata is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Diamondrock Hospitality Co and Murata Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murata Manufacturing 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 Co are associated (or correlated) with Murata Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murata Manufacturing has no effect on the direction of Diamondrock Hospitality i.e., Diamondrock Hospitality and Murata Manufacturing go up and down completely randomly.

Pair Corralation between Diamondrock Hospitality and Murata Manufacturing

Assuming the 90 days trading horizon Diamondrock Hospitality Co is expected to generate 1.03 times more return on investment than Murata Manufacturing. However, Diamondrock Hospitality is 1.03 times more volatile than Murata Manufacturing Co. It trades about 0.16 of its potential returns per unit of risk. Murata Manufacturing Co is currently generating about -0.09 per unit of risk. If you would invest  757.00  in Diamondrock Hospitality Co on September 12, 2024 and sell it today you would earn a total of  158.00  from holding Diamondrock Hospitality Co or generate 20.87% return on investment over 90 days.

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

Diamondrock Hospitality Co  vs.  Murata Manufacturing Co

Diamondrock Hospitality

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diamondrock Hospitality Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Diamondrock Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Murata Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murata Manufacturing Co 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.

Pair Trading with Diamondrock Hospitality and Murata Manufacturing

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

The idea behind Diamondrock Hospitality Co and Murata Manufacturing Co 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.