Correlation Between RLJ Lodging and Aluminumof China

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

By analyzing existing cross correlation between RLJ Lodging Trust and Aluminum of, you can compare the effects of market volatilities on RLJ Lodging and Aluminumof China 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 RLJ Lodging with a short position of Aluminumof China. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Aluminumof China.

Diversification Opportunities for RLJ Lodging and Aluminumof China

0.15

Correlation Coefficient

RLJ Lodging  Aluminumof China

Average diversification

The 3 months correlation between RLJ and Aluminumof is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminumof China and RLJ Lodging 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 RLJ Lodging Trust are associated (or correlated) with Aluminumof China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminumof China has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Aluminumof China go up and down completely randomly.

Pair Corralation between RLJ Lodging and Aluminumof China

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 5.54 times less return on investment than Aluminumof China. But when comparing it to its historical volatility, RLJ Lodging Trust is 8.89 times less risky than Aluminumof China. It trades about 0.06 of its potential returns per unit of risk. Aluminum of is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  54.00  in Aluminum of on October 26, 2024 and sell it today you would earn a total of  11.00  from holding Aluminum of or generate 20.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.54%
Values	Daily Returns

RLJ Lodging Trust  vs.  Aluminum of

RLJ Lodging Trust

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, RLJ Lodging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with RLJ Lodging and Aluminumof China

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

The idea behind RLJ Lodging Trust and Aluminum of 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.