Correlation Between National Retail and Diamondrock Hospitality

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

By analyzing existing cross correlation between National Retail Properties and Diamondrock Hospitality, you can compare the effects of market volatilities on National Retail and Diamondrock Hospitality 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 National Retail with a short position of Diamondrock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Diamondrock Hospitality.

Diversification Opportunities for National Retail and Diamondrock Hospitality

0.19

Correlation Coefficient

National Retail  Diamondrock Hospitality

Average diversification

The 3 months correlation between National and Diamondrock is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and National Retail 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 National Retail Properties are associated (or correlated) with Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of National Retail i.e., National Retail and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between National Retail and Diamondrock Hospitality

Considering the 90-day investment horizon National Retail Properties is expected to generate 1.04 times more return on investment than Diamondrock Hospitality. However, National Retail is 1.04 times more volatile than Diamondrock Hospitality. It trades about -0.02 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.11 per unit of risk. If you would invest  4,334  in National Retail Properties on November 29, 2024 and sell it today you would lose (119.00) from holding National Retail Properties or give up 2.75% of portfolio value over 90 days.

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

National Retail Properties  vs.  Diamondrock Hospitality

National Retail Prop

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, National Retail is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with National Retail and Diamondrock Hospitality

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

The idea behind National Retail Properties and Diamondrock Hospitality 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.