Correlation Between Marriott Vacations and Marriott International

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

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

Diversification Opportunities for Marriott Vacations and Marriott International

0.82

Correlation Coefficient

Marriott Vacations  Marriott International

Very poor diversification

The 3 months correlation between Marriott and Marriott is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Marriott Vacations Worldwide and Marriott International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marriott International and Marriott Vacations 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 Marriott Vacations Worldwide are associated (or correlated) with Marriott International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marriott International has no effect on the direction of Marriott Vacations i.e., Marriott Vacations and Marriott International go up and down completely randomly.

Pair Corralation between Marriott Vacations and Marriott International

Assuming the 90 days horizon Marriott Vacations Worldwide is expected to generate 1.94 times more return on investment than Marriott International. However, Marriott Vacations is 1.94 times more volatile than Marriott International. It trades about 0.14 of its potential returns per unit of risk. Marriott International is currently generating about 0.13 per unit of risk. If you would invest  7,334  in Marriott Vacations Worldwide on October 7, 2024 and sell it today you would earn a total of  1,116  from holding Marriott Vacations Worldwide or generate 15.22% return on investment over 90 days.

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

Marriott Vacations Worldwide  vs.  Marriott International

Marriott Vacations

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott Vacations Worldwide are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Marriott Vacations reported solid returns over the last few months and may actually be approaching a breakup point.

Marriott International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Marriott International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Marriott Vacations and Marriott International

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

The idea behind Marriott Vacations Worldwide and Marriott 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.