Correlation Between Summit Hotel and Palomar Holdings

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

Diversification Opportunities for Summit Hotel and Palomar Holdings

0.31

Correlation Coefficient

Summit Hotel  Palomar Holdings

Weak diversification

The 3 months correlation between Summit and Palomar is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Summit Hotel i.e., Summit Hotel and Palomar Holdings go up and down completely randomly.

Pair Corralation between Summit Hotel and Palomar Holdings

Considering the 90-day investment horizon Summit Hotel Properties is expected to generate 1.06 times more return on investment than Palomar Holdings. However, Summit Hotel is 1.06 times more volatile than Palomar Holdings. It trades about 0.17 of its potential returns per unit of risk. Palomar Holdings is currently generating about -0.07 per unit of risk. If you would invest  637.00  in Summit Hotel Properties on September 23, 2024 and sell it today you would earn a total of  45.00  from holding Summit Hotel Properties or generate 7.06% return on investment over 90 days.

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

Summit Hotel Properties  vs.  Palomar Holdings

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.

Palomar Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Summit Hotel and Palomar Holdings

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

The idea behind Summit Hotel Properties and Palomar Holdings 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.