Correlation Between Host Hotels and Chatham Lodging

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

Diversification Opportunities for Host Hotels and Chatham Lodging

0.85

Correlation Coefficient

Host Hotels  Chatham Lodging

Very poor diversification

The 3 months correlation between Host and Chatham is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust 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 Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of Host Hotels i.e., Host Hotels and Chatham Lodging go up and down completely randomly.

Pair Corralation between Host Hotels and Chatham Lodging

Considering the 90-day investment horizon Host Hotels is expected to generate 2.22 times less return on investment than Chatham Lodging. But when comparing it to its historical volatility, Host Hotels Resorts is 1.72 times less risky than Chatham Lodging. It trades about 0.1 of its potential returns per unit of risk. Chatham Lodging Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Chatham Lodging Trust on September 16, 2024 and sell it today you would earn a total of  142.00  from holding Chatham Lodging Trust or generate 17.21% return on investment over 90 days.

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

Host Hotels Resorts  vs.  Chatham Lodging Trust

Host Hotels Resorts

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chatham Lodging Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Lodging Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Chatham Lodging unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Host Hotels and Chatham Lodging

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

The idea behind Host Hotels Resorts and Chatham Lodging 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.