Correlation Between Playa Hotels and InterContinental

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

By analyzing existing cross correlation between Playa Hotels Resorts and InterContinental Hotels Group, you can compare the effects of market volatilities on Playa Hotels and InterContinental 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 Playa Hotels with a short position of InterContinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Playa Hotels and InterContinental.

Diversification Opportunities for Playa Hotels and InterContinental

0.51

Correlation Coefficient

Playa Hotels  InterContinental

Very weak diversification

The 3 months correlation between Playa and InterContinental is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels and Playa Hotels 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 Playa Hotels Resorts are associated (or correlated) with InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Playa Hotels i.e., Playa Hotels and InterContinental go up and down completely randomly.

Pair Corralation between Playa Hotels and InterContinental

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 2.59 times more return on investment than InterContinental. However, Playa Hotels is 2.59 times more volatile than InterContinental Hotels Group. It trades about 0.15 of its potential returns per unit of risk. InterContinental Hotels Group is currently generating about -0.01 per unit of risk. If you would invest  920.00  in Playa Hotels Resorts on November 29, 2024 and sell it today you would earn a total of  340.00  from holding Playa Hotels Resorts or generate 36.96% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  InterContinental Hotels Group

Playa Hotels Resorts

Risk-Adjusted Performance

Good

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

InterContinental Hotels

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Playa Hotels and InterContinental

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

The idea behind Playa Hotels Resorts and InterContinental Hotels Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.