Correlation Between Highlands REIT and Ashford Hospitality

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

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

Diversification Opportunities for Highlands REIT and Ashford Hospitality

0.23

Correlation Coefficient

Highlands REIT  Ashford Hospitality

Modest diversification

The 3 months correlation between Highlands and Ashford is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Highlands REIT and Ashford Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashford Hospitality Trust and Highlands REIT 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 Highlands REIT are associated (or correlated) with Ashford Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashford Hospitality Trust has no effect on the direction of Highlands REIT i.e., Highlands REIT and Ashford Hospitality go up and down completely randomly.

Pair Corralation between Highlands REIT and Ashford Hospitality

Given the investment horizon of 90 days Highlands REIT is expected to generate 31.31 times more return on investment than Ashford Hospitality. However, Highlands REIT is 31.31 times more volatile than Ashford Hospitality Trust. It trades about 0.22 of its potential returns per unit of risk. Ashford Hospitality Trust is currently generating about 0.13 per unit of risk. If you would invest  3.49  in Highlands REIT on December 28, 2024 and sell it today you would lose (0.82) from holding Highlands REIT or give up 23.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Highlands REIT  vs.  Ashford Hospitality Trust

Highlands REIT

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Highlands REIT are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Highlands REIT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ashford Hospitality Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ashford Hospitality Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Ashford Hospitality demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highlands REIT and Ashford Hospitality

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

The idea behind Highlands REIT and Ashford Hospitality 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.