Correlation Between RCI Hospitality and Huazhu

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

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

Diversification Opportunities for RCI Hospitality and Huazhu

-0.33

Correlation Coefficient

RCI Hospitality  Huazhu

Very good diversification

The 3 months correlation between RCI and Huazhu is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding RCI Hospitality Holdings and Huazhu Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huazhu Group and RCI Hospitality 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 RCI Hospitality Holdings are associated (or correlated) with Huazhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huazhu Group has no effect on the direction of RCI Hospitality i.e., RCI Hospitality and Huazhu go up and down completely randomly.

Pair Corralation between RCI Hospitality and Huazhu

Given the investment horizon of 90 days RCI Hospitality Holdings is expected to under-perform the Huazhu. But the stock apears to be less risky and, when comparing its historical volatility, RCI Hospitality Holdings is 1.22 times less risky than Huazhu. The stock trades about -0.03 of its potential returns per unit of risk. The Huazhu Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,299  in Huazhu Group on December 4, 2024 and sell it today you would earn a total of  333.00  from holding Huazhu Group or generate 10.09% return on investment over 90 days.

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

RCI Hospitality Holdings  vs.  Huazhu Group

RCI Hospitality Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days RCI Hospitality Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, RCI Hospitality is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Huazhu Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Huazhu Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical indicators, Huazhu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RCI Hospitality and Huazhu

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

The idea behind RCI Hospitality Holdings and Huazhu 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.