Correlation Between Soditech and Covivio Hotels

Can any of the company-specific risk be diversified away by investing in both Soditech and Covivio Hotels 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 Soditech and Covivio Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Soditech SA and Covivio Hotels, you can compare the effects of market volatilities on Soditech and Covivio Hotels 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 Soditech with a short position of Covivio Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soditech and Covivio Hotels.

Diversification Opportunities for Soditech and Covivio Hotels

0.54

Correlation Coefficient

Soditech  Covivio Hotels

Very weak diversification

The 3 months correlation between Soditech and Covivio is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Soditech SA and Covivio Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covivio Hotels and Soditech 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 Soditech SA are associated (or correlated) with Covivio Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covivio Hotels has no effect on the direction of Soditech i.e., Soditech and Covivio Hotels go up and down completely randomly.

Pair Corralation between Soditech and Covivio Hotels

Assuming the 90 days trading horizon Soditech SA is expected to generate 3.07 times more return on investment than Covivio Hotels. However, Soditech is 3.07 times more volatile than Covivio Hotels. It trades about 0.11 of its potential returns per unit of risk. Covivio Hotels is currently generating about 0.09 per unit of risk. If you would invest  104.00  in Soditech SA on December 23, 2024 and sell it today you would earn a total of  34.00  from holding Soditech SA or generate 32.69% return on investment over 90 days.

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

Soditech SA  vs.  Covivio Hotels

Soditech SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Soditech SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Soditech sustained solid returns over the last few months and may actually be approaching a breakup point.

Covivio Hotels

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covivio Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Covivio Hotels may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Soditech and Covivio Hotels

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

The idea behind Soditech SA and Covivio Hotels 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.