Correlation Between RLJ Lodging and LuxUrban Hotels

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and LuxUrban 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 RLJ Lodging and LuxUrban Hotels 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 LuxUrban Hotels 1300, you can compare the effects of market volatilities on RLJ Lodging and LuxUrban 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 RLJ Lodging with a short position of LuxUrban Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and LuxUrban Hotels.

Diversification Opportunities for RLJ Lodging and LuxUrban Hotels

-0.51

Correlation Coefficient

RLJ Lodging  LuxUrban Hotels

Excellent diversification

The 3 months correlation between RLJ and LuxUrban is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and LuxUrban Hotels 1300 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LuxUrban Hotels 1300 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 LuxUrban Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LuxUrban Hotels 1300 has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and LuxUrban Hotels go up and down completely randomly.

Pair Corralation between RLJ Lodging and LuxUrban Hotels

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 2.42 times less return on investment than LuxUrban Hotels. But when comparing it to its historical volatility, RLJ Lodging Trust is 4.21 times less risky than LuxUrban Hotels. It trades about 0.2 of its potential returns per unit of risk. LuxUrban Hotels 1300 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,425  in LuxUrban Hotels 1300 on October 10, 2024 and sell it today you would earn a total of  71.00  from holding LuxUrban Hotels 1300 or generate 4.98% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  LuxUrban Hotels 1300

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.

LuxUrban Hotels 1300

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LuxUrban Hotels 1300 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, LuxUrban Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and LuxUrban Hotels

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

The idea behind RLJ Lodging Trust and LuxUrban Hotels 1300 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.