Correlation Between Sotherly Hotels and RLJ Lodging

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

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

Diversification Opportunities for Sotherly Hotels and RLJ Lodging

-0.8

Correlation Coefficient

Sotherly Hotels  RLJ Lodging

Pay attention - limited upside

The 3 months correlation between Sotherly and RLJ is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sotherly Hotels and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust and Sotherly Hotels 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 Sotherly Hotels are associated (or correlated) with RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Sotherly Hotels i.e., Sotherly Hotels and RLJ Lodging go up and down completely randomly.

Pair Corralation between Sotherly Hotels and RLJ Lodging

Given the investment horizon of 90 days Sotherly Hotels is expected to generate 1.41 times more return on investment than RLJ Lodging. However, Sotherly Hotels is 1.41 times more volatile than RLJ Lodging Trust. It trades about 0.11 of its potential returns per unit of risk. RLJ Lodging Trust is currently generating about -0.01 per unit of risk. If you would invest  90.00  in Sotherly Hotels on September 30, 2024 and sell it today you would earn a total of  5.00  from holding Sotherly Hotels or generate 5.56% return on investment over 90 days.

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

Sotherly Hotels  vs.  RLJ Lodging Trust

Sotherly Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

RLJ Lodging Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, RLJ Lodging may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sotherly Hotels and RLJ Lodging

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

The idea behind Sotherly Hotels and RLJ Lodging Trust 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.