Correlation Between Host Hotels and Corporate Office

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

Diversification Opportunities for Host Hotels and Corporate Office

0.78

Correlation Coefficient

Host Hotels  Corporate Office

Poor diversification

The 3 months correlation between Host and Corporate is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Corporate Office Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Office Pro 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 Corporate Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Office Pro has no effect on the direction of Host Hotels i.e., Host Hotels and Corporate Office go up and down completely randomly.

Pair Corralation between Host Hotels and Corporate Office

Assuming the 90 days horizon Host Hotels is expected to generate 1.49 times less return on investment than Corporate Office. In addition to that, Host Hotels is 1.16 times more volatile than Corporate Office Properties. It trades about 0.03 of its total potential returns per unit of risk. Corporate Office Properties is currently generating about 0.06 per unit of volatility. If you would invest  2,066  in Corporate Office Properties on October 5, 2024 and sell it today you would earn a total of  874.00  from holding Corporate Office Properties or generate 42.3% return on investment over 90 days.

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

Host Hotels Resorts  vs.  Corporate Office Properties

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Corporate Office Pro

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Corporate Office Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Corporate Office is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Host Hotels and Corporate Office

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

The idea behind Host Hotels Resorts and Corporate Office Properties 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.