Correlation Between Summit Hotel and Diamondrock Hospitality

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

Diversification Opportunities for Summit Hotel and Diamondrock Hospitality

0.91

Correlation Coefficient

Summit Hotel  Diamondrock Hospitality

Almost no diversification

The 3 months correlation between Summit and Diamondrock is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Summit Hotel i.e., Summit Hotel and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Summit Hotel and Diamondrock Hospitality

Considering the 90-day investment horizon Summit Hotel Properties is expected to under-perform the Diamondrock Hospitality. In addition to that, Summit Hotel is 1.23 times more volatile than Diamondrock Hospitality. It trades about -0.19 of its total potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.15 per unit of volatility. If you would invest  884.00  in Diamondrock Hospitality on December 30, 2024 and sell it today you would lose (120.00) from holding Diamondrock Hospitality or give up 13.57% of portfolio value over 90 days.

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

Summit Hotel Properties  vs.  Diamondrock Hospitality

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. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Summit Hotel and Diamondrock Hospitality

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

The idea behind Summit Hotel Properties and Diamondrock Hospitality 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.