Correlation Between RLJ Lodging and Host Hotels

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

Diversification Opportunities for RLJ Lodging and Host Hotels

0.63

Correlation Coefficient

RLJ Lodging  Host Hotels

Poor diversification

The 3 months correlation between RLJ and Host is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Host Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Host Hotels Resorts 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 Host Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Host Hotels Resorts has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Host Hotels go up and down completely randomly.

Pair Corralation between RLJ Lodging and Host Hotels

Considering the 90-day investment horizon RLJ Lodging Trust is expected to generate 1.11 times more return on investment than Host Hotels. However, RLJ Lodging is 1.11 times more volatile than Host Hotels Resorts. It trades about -0.02 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about -0.06 per unit of risk. If you would invest  997.00  in RLJ Lodging Trust on October 20, 2024 and sell it today you would lose (6.00) from holding RLJ Lodging Trust or give up 0.6% of portfolio value over 90 days.

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

RLJ Lodging Trust  vs.  Host Hotels Resorts

RLJ Lodging Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, RLJ Lodging may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Host Hotels is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RLJ Lodging and Host Hotels

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

The idea behind RLJ Lodging Trust and Host Hotels Resorts 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.