Correlation Between InterContinental and Huazhu

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

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

Diversification Opportunities for InterContinental and Huazhu

0.1

Correlation Coefficient

InterContinental  Huazhu

Average diversification

The 3 months correlation between InterContinental and Huazhu is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Huazhu Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huazhu Group and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with Huazhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huazhu Group has no effect on the direction of InterContinental i.e., InterContinental and Huazhu go up and down completely randomly.

Pair Corralation between InterContinental and Huazhu

Assuming the 90 days horizon InterContinental Hotels Group is expected to generate 0.58 times more return on investment than Huazhu. However, InterContinental Hotels Group is 1.74 times less risky than Huazhu. It trades about 0.18 of its potential returns per unit of risk. Huazhu Group is currently generating about 0.08 per unit of risk. If you would invest  9,797  in InterContinental Hotels Group on September 15, 2024 and sell it today you would earn a total of  2,628  from holding InterContinental Hotels Group or generate 26.82% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Huazhu Group

InterContinental Hotels

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Huazhu Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Huazhu Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Huazhu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with InterContinental and Huazhu

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

The idea behind InterContinental Hotels Group and Huazhu Group 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.