Correlation Between Host Hotels and RLJ Lodging

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

Diversification Opportunities for Host Hotels and RLJ Lodging

-0.22

Correlation Coefficient

Host Hotels  RLJ Lodging

Very good diversification

The 3 months correlation between Host and RLJ is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ 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 RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Host Hotels i.e., Host Hotels and RLJ Lodging go up and down completely randomly.

Pair Corralation between Host Hotels and RLJ Lodging

Considering the 90-day investment horizon Host Hotels Resorts is expected to under-perform the RLJ Lodging. In addition to that, Host Hotels is 4.61 times more volatile than RLJ Lodging Trust. It trades about -0.04 of its total potential returns per unit of risk. RLJ Lodging Trust is currently generating about -0.03 per unit of volatility. If you would invest  2,537  in RLJ Lodging Trust on September 24, 2024 and sell it today you would lose (6.00) from holding RLJ Lodging Trust or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Host Hotels Resorts  vs.  RLJ Lodging Trust

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Host Hotels is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

RLJ Lodging Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking indicators, RLJ Lodging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Host Hotels and RLJ Lodging

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

The idea behind Host Hotels Resorts and RLJ 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.