Correlation Between Sotherly Hotels and Chatham Lodging

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

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

Diversification Opportunities for Sotherly Hotels and Chatham Lodging

-0.75

Correlation Coefficient

Sotherly Hotels  Chatham Lodging

Pay attention - limited upside

The 3 months correlation between Sotherly and Chatham is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sotherly Hotels Series and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham 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 Series are associated (or correlated) with Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of Sotherly Hotels i.e., Sotherly Hotels and Chatham Lodging go up and down completely randomly.

Pair Corralation between Sotherly Hotels and Chatham Lodging

Assuming the 90 days horizon Sotherly Hotels Series is expected to under-perform the Chatham Lodging. But the stock apears to be less risky and, when comparing its historical volatility, Sotherly Hotels Series is 1.74 times less risky than Chatham Lodging. The stock trades about -0.05 of its potential returns per unit of risk. The Chatham Lodging Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Chatham Lodging Trust on September 16, 2024 and sell it today you would earn a total of  142.00  from holding Chatham Lodging Trust or generate 17.21% return on investment over 90 days.

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

Sotherly Hotels Series  vs.  Chatham Lodging Trust

Sotherly Hotels Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sotherly Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chatham Lodging Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Lodging Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Chatham Lodging unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sotherly Hotels and Chatham Lodging

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

The idea behind Sotherly Hotels Series and Chatham 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.