Correlation Between KENNAMETAL INC and Choice Hotels

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

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

Diversification Opportunities for KENNAMETAL INC and Choice Hotels

0.87

Correlation Coefficient

KENNAMETAL INC  Choice Hotels

Very poor diversification

The 3 months correlation between KENNAMETAL and Choice is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding KENNAMETAL INC 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 KENNAMETAL INC 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 KENNAMETAL INC 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 KENNAMETAL INC i.e., KENNAMETAL INC and Choice Hotels go up and down completely randomly.

Pair Corralation between KENNAMETAL INC and Choice Hotels

Assuming the 90 days trading horizon KENNAMETAL INC is expected to under-perform the Choice Hotels. In addition to that, KENNAMETAL INC is 1.05 times more volatile than Choice Hotels International. It trades about -0.2 of its total potential returns per unit of risk. Choice Hotels International is currently generating about -0.06 per unit of volatility. If you would invest  13,600  in Choice Hotels International on September 21, 2024 and sell it today you would lose (300.00) from holding Choice Hotels International or give up 2.21% of portfolio value over 90 days.

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

KENNAMETAL INC  vs.  Choice Hotels International

KENNAMETAL INC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KENNAMETAL INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KENNAMETAL INC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Choice Hotels Intern

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 11 (%) 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 KENNAMETAL INC and Choice Hotels

The main advantage of trading using opposite KENNAMETAL INC and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KENNAMETAL INC 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 KENNAMETAL INC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.