Correlation Between RLJ Lodging and FREEPORT

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and FREEPORT 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 FREEPORT 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 FREEPORT MCMORAN INC 525, you can compare the effects of market volatilities on RLJ Lodging and FREEPORT 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 FREEPORT. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and FREEPORT.

Diversification Opportunities for RLJ Lodging and FREEPORT

0.2

Correlation Coefficient

RLJ Lodging  FREEPORT

Modest diversification

The 3 months correlation between RLJ and FREEPORT is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and FREEPORT MCMORAN INC 525 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FREEPORT MCMORAN INC 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 FREEPORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FREEPORT MCMORAN INC has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and FREEPORT go up and down completely randomly.

Pair Corralation between RLJ Lodging and FREEPORT

Assuming the 90 days trading horizon RLJ Lodging Trust is expected to generate 1.08 times more return on investment than FREEPORT. However, RLJ Lodging is 1.08 times more volatile than FREEPORT MCMORAN INC 525. It trades about 0.06 of its potential returns per unit of risk. FREEPORT MCMORAN INC 525 is currently generating about 0.01 per unit of risk. If you would invest  2,483  in RLJ Lodging Trust on December 24, 2024 and sell it today you would earn a total of  35.00  from holding RLJ Lodging Trust or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

RLJ Lodging Trust  vs.  FREEPORT MCMORAN INC 525

RLJ Lodging Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 5 (%) 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.

FREEPORT MCMORAN INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days FREEPORT MCMORAN INC 525 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FREEPORT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RLJ Lodging and FREEPORT

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

The idea behind RLJ Lodging Trust and FREEPORT MCMORAN INC 525 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.