Correlation Between Pebblebrook Hotel and Sotherly Hotels

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

By analyzing existing cross correlation between Pebblebrook Hotel Trust and Sotherly Hotels PR, you can compare the effects of market volatilities on Pebblebrook Hotel and Sotherly 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 Pebblebrook Hotel with a short position of Sotherly Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pebblebrook Hotel and Sotherly Hotels.

Diversification Opportunities for Pebblebrook Hotel and Sotherly Hotels

0.04

Correlation Coefficient

Pebblebrook Hotel  Sotherly Hotels

Significant diversification

The 3 months correlation between Pebblebrook and Sotherly is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Pebblebrook Hotel Trust and Sotherly Hotels PR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels PR and Pebblebrook Hotel 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 Pebblebrook Hotel Trust are associated (or correlated) with Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels PR has no effect on the direction of Pebblebrook Hotel i.e., Pebblebrook Hotel and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Pebblebrook Hotel and Sotherly Hotels

Assuming the 90 days trading horizon Pebblebrook Hotel Trust is expected to under-perform the Sotherly Hotels. But the preferred stock apears to be less risky and, when comparing its historical volatility, Pebblebrook Hotel Trust is 1.23 times less risky than Sotherly Hotels. The preferred stock trades about -0.24 of its potential returns per unit of risk. The Sotherly Hotels PR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,684  in Sotherly Hotels PR on December 4, 2024 and sell it today you would earn a total of  17.00  from holding Sotherly Hotels PR or generate 1.01% return on investment over 90 days.

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

Pebblebrook Hotel Trust  vs.  Sotherly Hotels PR

Pebblebrook Hotel Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pebblebrook Hotel Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Preferred Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Sotherly Hotels PR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Pebblebrook Hotel and Sotherly Hotels

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

The idea behind Pebblebrook Hotel Trust and Sotherly Hotels PR 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.