Correlation Between RLJ Lodging and Chimera Investment

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Chimera Investment 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 Chimera Investment 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 Chimera Investment, you can compare the effects of market volatilities on RLJ Lodging and Chimera Investment 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 Chimera Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Chimera Investment.

Diversification Opportunities for RLJ Lodging and Chimera Investment

0.48

Correlation Coefficient

RLJ Lodging  Chimera Investment

Very weak diversification

The 3 months correlation between RLJ and Chimera is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Chimera Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chimera Investment 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 Chimera Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chimera Investment has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Chimera Investment go up and down completely randomly.

Pair Corralation between RLJ Lodging and Chimera Investment

Assuming the 90 days trading horizon RLJ Lodging Trust is expected to generate 1.26 times more return on investment than Chimera Investment. However, RLJ Lodging is 1.26 times more volatile than Chimera Investment. It trades about 0.07 of its potential returns per unit of risk. Chimera Investment is currently generating about -0.04 per unit of risk. If you would invest  2,473  in RLJ Lodging Trust on December 29, 2024 and sell it today you would earn a total of  35.00  from holding RLJ Lodging Trust or generate 1.42% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  Chimera Investment

RLJ Lodging Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 5 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Chimera Investment

Risk-Adjusted Performance

Very Weak

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

Pair Trading with RLJ Lodging and Chimera Investment

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

The idea behind RLJ Lodging Trust and Chimera Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.