Correlation Between Summit Hotel and Ashford Hospitality

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

By analyzing existing cross correlation between Summit Hotel Properties and Ashford Hospitality Trust, you can compare the effects of market volatilities on Summit Hotel and Ashford Hospitality 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 Summit Hotel with a short position of Ashford Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Hotel and Ashford Hospitality.

Diversification Opportunities for Summit Hotel and Ashford Hospitality

-0.67

Correlation Coefficient

Summit Hotel  Ashford Hospitality

Excellent diversification

The 3 months correlation between Summit and Ashford is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Ashford Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashford Hospitality Trust and Summit Hotel 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 Summit Hotel Properties are associated (or correlated) with Ashford Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashford Hospitality Trust has no effect on the direction of Summit Hotel i.e., Summit Hotel and Ashford Hospitality go up and down completely randomly.

Pair Corralation between Summit Hotel and Ashford Hospitality

Assuming the 90 days trading horizon Summit Hotel Properties is expected to under-perform the Ashford Hospitality. In addition to that, Summit Hotel is 1.05 times more volatile than Ashford Hospitality Trust. It trades about -0.07 of its total potential returns per unit of risk. Ashford Hospitality Trust is currently generating about 0.2 per unit of volatility. If you would invest  1,294  in Ashford Hospitality Trust on December 30, 2024 and sell it today you would earn a total of  286.00  from holding Ashford Hospitality Trust or generate 22.1% return on investment over 90 days.

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

Summit Hotel Properties  vs.  Ashford Hospitality Trust

Summit Hotel Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ashford Hospitality Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ashford Hospitality Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Ashford Hospitality demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Hotel and Ashford Hospitality

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

The idea behind Summit Hotel Properties and Ashford Hospitality 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.