Correlation Between Host Hotels and Carsales

Can any of the company-specific risk be diversified away by investing in both Host Hotels and Carsales 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 Carsales 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 Carsales, you can compare the effects of market volatilities on Host Hotels and Carsales 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 Carsales. Check out your portfolio center. Please also check ongoing floating volatility patterns of Host Hotels and Carsales.

Diversification Opportunities for Host Hotels and Carsales

0.55

Correlation Coefficient

Host Hotels  Carsales

Very weak diversification

The 3 months correlation between Host and Carsales is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Carsales in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carsales 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carsales has no effect on the direction of Host Hotels i.e., Host Hotels and Carsales go up and down completely randomly.

Pair Corralation between Host Hotels and Carsales

Assuming the 90 days horizon Host Hotels is expected to generate 1.33 times less return on investment than Carsales. In addition to that, Host Hotels is 1.17 times more volatile than Carsales. It trades about 0.04 of its total potential returns per unit of risk. Carsales is currently generating about 0.06 per unit of volatility. If you would invest  2,064  in Carsales on September 19, 2024 and sell it today you would earn a total of  236.00  from holding Carsales or generate 11.43% return on investment over 90 days.

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

Host Hotels Resorts  vs.  Carsales

Host Hotels Resorts

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Carsales

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Host Hotels and Carsales

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

The idea behind Host Hotels Resorts and Carsales 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.