Correlation Between RLJ Lodging and Target Hospitality

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

Diversification Opportunities for RLJ Lodging and Target Hospitality

-0.12

Correlation Coefficient

RLJ Lodging  Target Hospitality

Good diversification

The 3 months correlation between RLJ and Target is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Target Hospitality Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Hospitality Corp 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 Target Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Hospitality Corp has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Target Hospitality go up and down completely randomly.

Pair Corralation between RLJ Lodging and Target Hospitality

Assuming the 90 days trading horizon RLJ Lodging is expected to generate 82.26 times less return on investment than Target Hospitality. But when comparing it to its historical volatility, RLJ Lodging Trust is 6.29 times less risky than Target Hospitality. It trades about 0.01 of its potential returns per unit of risk. Target Hospitality Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  759.00  in Target Hospitality Corp on October 24, 2024 and sell it today you would earn a total of  258.00  from holding Target Hospitality Corp or generate 33.99% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  Target Hospitality Corp

RLJ Lodging Trust

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 1 (%) 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.

Target Hospitality Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target Hospitality Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Target Hospitality demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and Target Hospitality

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

The idea behind RLJ Lodging Trust and Target Hospitality Corp 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.