Correlation Between RLJ Lodging and Fenbo Holdings

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

Diversification Opportunities for RLJ Lodging and Fenbo Holdings

0.74

Correlation Coefficient

RLJ Lodging  Fenbo Holdings

Poor diversification

The 3 months correlation between RLJ and Fenbo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Fenbo Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fenbo Holdings 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 Fenbo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fenbo Holdings has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Fenbo Holdings go up and down completely randomly.

Pair Corralation between RLJ Lodging and Fenbo Holdings

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 11.94 times less return on investment than Fenbo Holdings. But when comparing it to its historical volatility, RLJ Lodging Trust is 19.37 times less risky than Fenbo Holdings. It trades about 0.2 of its potential returns per unit of risk. Fenbo Holdings Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  149.00  in Fenbo Holdings Limited on October 11, 2024 and sell it today you would earn a total of  26.00  from holding Fenbo Holdings Limited or generate 17.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

RLJ Lodging Trust  vs.  Fenbo Holdings Limited

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.

Fenbo Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fenbo Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with RLJ Lodging and Fenbo Holdings

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

The idea behind RLJ Lodging Trust and Fenbo Holdings Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.