Correlation Between RLJ Lodging and NioCorp Developments

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

Diversification Opportunities for RLJ Lodging and NioCorp Developments

0.46

Correlation Coefficient

RLJ Lodging  NioCorp Developments

Very weak diversification

The 3 months correlation between RLJ and NioCorp is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and NioCorp Developments Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NioCorp Developments 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 NioCorp Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NioCorp Developments has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and NioCorp Developments go up and down completely randomly.

Pair Corralation between RLJ Lodging and NioCorp Developments

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 18.87 times less return on investment than NioCorp Developments. But when comparing it to its historical volatility, RLJ Lodging Trust is 13.46 times less risky than NioCorp Developments. It trades about 0.08 of its potential returns per unit of risk. NioCorp Developments Ltd is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  137.00  in NioCorp Developments Ltd on December 19, 2024 and sell it today you would earn a total of  44.00  from holding NioCorp Developments Ltd or generate 32.12% 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.  NioCorp Developments Ltd

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 6 (%) 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.

NioCorp Developments

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NioCorp Developments Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, NioCorp Developments sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and NioCorp Developments

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

The idea behind RLJ Lodging Trust and NioCorp Developments Ltd 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.