Correlation Between Host Hotels and Phillips

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

By analyzing existing cross correlation between Host Hotels Resorts and Phillips 66, you can compare the effects of market volatilities on Host Hotels and Phillips 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 Host Hotels with a short position of Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Host Hotels and Phillips.

Diversification Opportunities for Host Hotels and Phillips

0.07

Correlation Coefficient

Host Hotels  Phillips

Significant diversification

The 3 months correlation between Host and Phillips is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 and Host Hotels 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 Host Hotels Resorts are associated (or correlated) with Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Host Hotels i.e., Host Hotels and Phillips go up and down completely randomly.

Pair Corralation between Host Hotels and Phillips

Assuming the 90 days horizon Host Hotels is expected to generate 1.34 times less return on investment than Phillips. But when comparing it to its historical volatility, Host Hotels Resorts is 1.03 times less risky than Phillips. It trades about 0.02 of its potential returns per unit of risk. Phillips 66 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,775  in Phillips 66 on October 4, 2024 and sell it today you would earn a total of  2,003  from holding Phillips 66 or generate 22.83% return on investment over 90 days.

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

Host Hotels Resorts  vs.  Phillips 66

Host Hotels Resorts

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Host Hotels and Phillips

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

The idea behind Host Hotels Resorts and Phillips 66 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.