Correlation Between DOLFINES and Choice Hotels

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

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

Diversification Opportunities for DOLFINES and Choice Hotels

0.72

Correlation Coefficient

DOLFINES  Choice Hotels

Poor diversification

The 3 months correlation between DOLFINES and Choice is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding DOLFINES SA EO and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern and DOLFINES 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 DOLFINES SA EO are associated (or correlated) with Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of DOLFINES i.e., DOLFINES and Choice Hotels go up and down completely randomly.

Pair Corralation between DOLFINES and Choice Hotels

Assuming the 90 days trading horizon DOLFINES SA EO is expected to generate 40.69 times more return on investment than Choice Hotels. However, DOLFINES is 40.69 times more volatile than Choice Hotels International. It trades about 0.16 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.07 per unit of risk. If you would invest  150.00  in DOLFINES SA EO on October 9, 2024 and sell it today you would lose (15.00) from holding DOLFINES SA EO or give up 10.0% of portfolio value over 90 days.

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

DOLFINES SA EO  vs.  Choice Hotels International

DOLFINES SA EO

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DOLFINES SA EO are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DOLFINES reported solid returns over the last few months and may actually be approaching a breakup point.

Choice Hotels Intern

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DOLFINES and Choice Hotels

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

The idea behind DOLFINES SA EO and Choice Hotels International 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.