Correlation Between RLJ Lodging and InnSuites Hospitality

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

Diversification Opportunities for RLJ Lodging and InnSuites Hospitality

0.61

Correlation Coefficient

RLJ Lodging  InnSuites Hospitality

Poor diversification

The 3 months correlation between RLJ and InnSuites is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and InnSuites Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnSuites Hospitality 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 InnSuites Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnSuites Hospitality has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and InnSuites Hospitality go up and down completely randomly.

Pair Corralation between RLJ Lodging and InnSuites Hospitality

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the InnSuites Hospitality. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 28.38 times less risky than InnSuites Hospitality. The stock trades about -0.01 of its potential returns per unit of risk. The InnSuites Hospitality Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  157.00  in InnSuites Hospitality Trust on October 24, 2024 and sell it today you would earn a total of  100.00  from holding InnSuites Hospitality Trust or generate 63.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

RLJ Lodging Trust  vs.  InnSuites Hospitality Trust

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.

InnSuites Hospitality

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InnSuites Hospitality Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical indicators, InnSuites Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and InnSuites Hospitality

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

The idea behind RLJ Lodging Trust and InnSuites Hospitality Trust 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.