Correlation Between RLJ Lodging and Rexford Industrial

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

Diversification Opportunities for RLJ Lodging and Rexford Industrial

-0.26

Correlation Coefficient

RLJ Lodging  Rexford Industrial

Very good diversification

The 3 months correlation between RLJ and Rexford is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Rexford Industrial Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rexford Industrial Realty 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 Rexford Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rexford Industrial Realty has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Rexford Industrial go up and down completely randomly.

Pair Corralation between RLJ Lodging and Rexford Industrial

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Rexford Industrial. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 1.05 times less risky than Rexford Industrial. The stock trades about -0.06 of its potential returns per unit of risk. The Rexford Industrial Realty is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,163  in Rexford Industrial Realty on November 29, 2024 and sell it today you would lose (84.00) from holding Rexford Industrial Realty or give up 2.02% of portfolio value over 90 days.

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

RLJ Lodging Trust  vs.  Rexford Industrial Realty

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 relatively steady essential indicators, RLJ Lodging is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Rexford Industrial Realty

Risk-Adjusted Performance

Very Weak

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

Pair Trading with RLJ Lodging and Rexford Industrial

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

The idea behind RLJ Lodging Trust and Rexford Industrial Realty 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.