Correlation Between RLJ Lodging and EPR Properties

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

Diversification Opportunities for RLJ Lodging and EPR Properties

0.78

Correlation Coefficient

RLJ Lodging  EPR Properties

Poor diversification

The 3 months correlation between RLJ and EPR is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and EPR Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPR Properties 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 EPR Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPR Properties has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and EPR Properties go up and down completely randomly.

Pair Corralation between RLJ Lodging and EPR Properties

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 1.52 times less return on investment than EPR Properties. But when comparing it to its historical volatility, RLJ Lodging Trust is 1.81 times less risky than EPR Properties. It trades about 0.08 of its potential returns per unit of risk. EPR Properties is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,735  in EPR Properties on September 26, 2024 and sell it today you would earn a total of  365.00  from holding EPR Properties or generate 21.04% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  EPR Properties

RLJ Lodging Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

EPR Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EPR Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, EPR Properties is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with RLJ Lodging and EPR Properties

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

The idea behind RLJ Lodging Trust and EPR Properties 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .