Correlation Between Summit Hotel and Eastern

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

Diversification Opportunities for Summit Hotel and Eastern

0.15

Correlation Coefficient

Summit Hotel  Eastern

Average diversification

The 3 months correlation between Summit and Eastern is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Summit Hotel i.e., Summit Hotel and Eastern go up and down completely randomly.

Pair Corralation between Summit Hotel and Eastern

Considering the 90-day investment horizon Summit Hotel is expected to generate 3.95 times less return on investment than Eastern. But when comparing it to its historical volatility, Summit Hotel Properties is 1.44 times less risky than Eastern. It trades about 0.01 of its potential returns per unit of risk. Eastern Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,904  in Eastern Co on September 21, 2024 and sell it today you would earn a total of  895.00  from holding Eastern Co or generate 47.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Summit Hotel Properties  vs.  Eastern Co

Summit Hotel Properties

Risk-Adjusted Performance

0 of 100

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 very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Summit Hotel and Eastern

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

The idea behind Summit Hotel Properties and Eastern Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.