Correlation Between PERENNIAL ENERGY and Choice Hotels

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

By analyzing existing cross correlation between PERENNIAL ENERGY HD 01 and Choice Hotels International, you can compare the effects of market volatilities on PERENNIAL ENERGY 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 PERENNIAL ENERGY with a short position of Choice Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of PERENNIAL ENERGY and Choice Hotels.

Diversification Opportunities for PERENNIAL ENERGY and Choice Hotels

-0.01

Correlation Coefficient

PERENNIAL ENERGY  Choice Hotels

Good diversification

The 3 months correlation between PERENNIAL and Choice is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding PERENNIAL ENERGY HD 01 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 PERENNIAL ENERGY 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 PERENNIAL ENERGY HD 01 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 PERENNIAL ENERGY i.e., PERENNIAL ENERGY and Choice Hotels go up and down completely randomly.

Pair Corralation between PERENNIAL ENERGY and Choice Hotels

Assuming the 90 days horizon PERENNIAL ENERGY HD 01 is expected to generate 3.45 times more return on investment than Choice Hotels. However, PERENNIAL ENERGY is 3.45 times more volatile than Choice Hotels International. It trades about 0.06 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.06 per unit of risk. If you would invest  6.42  in PERENNIAL ENERGY HD 01 on October 2, 2024 and sell it today you would earn a total of  4.58  from holding PERENNIAL ENERGY HD 01 or generate 71.34% return on investment over 90 days.

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

PERENNIAL ENERGY HD 01  vs.  Choice Hotels International

PERENNIAL ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PERENNIAL ENERGY HD 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PERENNIAL ENERGY is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 PERENNIAL ENERGY and Choice Hotels

The main advantage of trading using opposite PERENNIAL ENERGY and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PERENNIAL ENERGY 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 PERENNIAL ENERGY HD 01 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.