Correlation Between B Riley and Sotherly Hotels

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

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

Diversification Opportunities for B Riley and Sotherly Hotels

-0.32

Correlation Coefficient

B Riley  Sotherly Hotels

Very good diversification

The 3 months correlation between RILYG and Sotherly is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding B Riley Financial and Sotherly Hotels Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels Series and B Riley 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 B Riley Financial 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 Series has no effect on the direction of B Riley i.e., B Riley and Sotherly Hotels go up and down completely randomly.

Pair Corralation between B Riley and Sotherly Hotels

Assuming the 90 days horizon B Riley Financial is expected to generate 3.8 times more return on investment than Sotherly Hotels. However, B Riley is 3.8 times more volatile than Sotherly Hotels Series. It trades about -0.01 of its potential returns per unit of risk. Sotherly Hotels Series is currently generating about -0.05 per unit of risk. If you would invest  1,374  in B Riley Financial on September 16, 2024 and sell it today you would lose (108.00) from holding B Riley Financial or give up 7.86% of portfolio value over 90 days.

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

B Riley Financial  vs.  Sotherly Hotels Series

B Riley Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sotherly Hotels Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sotherly Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with B Riley and Sotherly Hotels

The main advantage of trading using opposite B Riley and Sotherly Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B Riley 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 B Riley Financial and Sotherly Hotels Series 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.