Correlation Between RLJ Lodging and Portillos

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

Diversification Opportunities for RLJ Lodging and Portillos

-0.33

Correlation Coefficient

RLJ Lodging  Portillos

Very good diversification

The 3 months correlation between RLJ and Portillos is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Portillos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portillos 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 Portillos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portillos has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Portillos go up and down completely randomly.

Pair Corralation between RLJ Lodging and Portillos

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Portillos. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 2.44 times less risky than Portillos. The stock trades about -0.22 of its potential returns per unit of risk. The Portillos is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  910.00  in Portillos on December 28, 2024 and sell it today you would earn a total of  280.00  from holding Portillos or generate 30.77% 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.  Portillos

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.

Portillos

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Portillos are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Portillos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and Portillos

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

The idea behind RLJ Lodging Trust and Portillos 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.