Correlation Between RLJ Lodging and Innovative Industrial

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

Diversification Opportunities for RLJ Lodging and Innovative Industrial

0.19

Correlation Coefficient

RLJ Lodging  Innovative Industrial

Average diversification

The 3 months correlation between RLJ and Innovative is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Innovative Industrial Properti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Industrial 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 Innovative Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Industrial has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Innovative Industrial go up and down completely randomly.

Pair Corralation between RLJ Lodging and Innovative Industrial

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Innovative Industrial. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 1.39 times less risky than Innovative Industrial. The stock trades about -0.22 of its potential returns per unit of risk. The Innovative Industrial Properties is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,541  in Innovative Industrial Properties on December 28, 2024 and sell it today you would lose (166.00) from holding Innovative Industrial Properties or give up 2.54% of portfolio value over 90 days.

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

RLJ Lodging Trust  vs.  Innovative Industrial Properti

RLJ Lodging Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's essential indicators remain relatively steady which may send shares a bit higher in April 2025. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Innovative Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovative Industrial Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Innovative Industrial is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with RLJ Lodging and Innovative Industrial

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

The idea behind RLJ Lodging Trust and Innovative Industrial Properties 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.