Correlation Between Mitsubishi Gas and Choice Hotels

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

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

Diversification Opportunities for Mitsubishi Gas and Choice Hotels

0.73

Correlation Coefficient

Mitsubishi Gas  Choice Hotels

Poor diversification

The 3 months correlation between Mitsubishi and Choice is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Gas Chemical 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 Mitsubishi Gas 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 Mitsubishi Gas Chemical 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 Mitsubishi Gas i.e., Mitsubishi Gas and Choice Hotels go up and down completely randomly.

Pair Corralation between Mitsubishi Gas and Choice Hotels

Assuming the 90 days trading horizon Mitsubishi Gas is expected to generate 1.65 times less return on investment than Choice Hotels. But when comparing it to its historical volatility, Mitsubishi Gas Chemical is 1.3 times less risky than Choice Hotels. It trades about 0.1 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  11,974  in Choice Hotels International on October 24, 2024 and sell it today you would earn a total of  1,526  from holding Choice Hotels International or generate 12.74% return on investment over 90 days.

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

Mitsubishi Gas Chemical  vs.  Choice Hotels International

Mitsubishi Gas Chemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Gas Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Mitsubishi Gas may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Choice Hotels Intern

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitsubishi Gas and Choice Hotels

The main advantage of trading using opposite Mitsubishi Gas and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi Gas 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 Mitsubishi Gas Chemical 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.