Correlation Between RLJ Lodging and Verizon Communications

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

Diversification Opportunities for RLJ Lodging and Verizon Communications

-0.78

Correlation Coefficient

RLJ Lodging  Verizon Communications

Pay attention - limited upside

The 3 months correlation between RLJ and Verizon is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Verizon Communications go up and down completely randomly.

Pair Corralation between RLJ Lodging and Verizon Communications

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Verizon Communications. In addition to that, RLJ Lodging is 1.14 times more volatile than Verizon Communications. It trades about -0.16 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.14 per unit of volatility. If you would invest  3,920  in Verizon Communications on December 27, 2024 and sell it today you would earn a total of  498.00  from holding Verizon Communications or generate 12.7% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  Verizon Communications

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.

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and Verizon Communications

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

The idea behind RLJ Lodging Trust and Verizon Communications 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.