Correlation Between Regional Health and Sotherly Hotels

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

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

Diversification Opportunities for Regional Health and Sotherly Hotels

0.56

Correlation Coefficient

Regional Health  Sotherly Hotels

Very weak diversification

The 3 months correlation between Regional and Sotherly is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Regional Health Properties and Sotherly Hotels Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels Pref and Regional Health 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 Regional Health Properties 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 Pref has no effect on the direction of Regional Health i.e., Regional Health and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Regional Health and Sotherly Hotels

Considering the 90-day investment horizon Regional Health Properties is expected to under-perform the Sotherly Hotels. In addition to that, Regional Health is 1.04 times more volatile than Sotherly Hotels Pref. It trades about -0.19 of its total potential returns per unit of risk. Sotherly Hotels Pref is currently generating about 0.0 per unit of volatility. If you would invest  1,730  in Sotherly Hotels Pref on October 8, 2024 and sell it today you would lose (5.00) from holding Sotherly Hotels Pref or give up 0.29% of portfolio value over 90 days.

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

Regional Health Properties  vs.  Sotherly Hotels Pref

Regional Health Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Regional Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sotherly Hotels Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Pref 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 Regional Health and Sotherly Hotels

The main advantage of trading using opposite Regional Health and Sotherly Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Health 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 Regional Health Properties and Sotherly Hotels Pref 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 Global Correlations module to find global opportunities by holding instruments from different markets.