Correlation Between Sotherly Hotels and Sunstone Hotel

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

Diversification Opportunities for Sotherly Hotels and Sunstone Hotel

-0.63

Correlation Coefficient

Sotherly Hotels  Sunstone Hotel

Excellent diversification

The 3 months correlation between Sotherly and Sunstone is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sotherly Hotels Series and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of Sotherly Hotels i.e., Sotherly Hotels and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Sotherly Hotels and Sunstone Hotel

Assuming the 90 days horizon Sotherly Hotels Series is expected to generate 2.06 times more return on investment than Sunstone Hotel. However, Sotherly Hotels is 2.06 times more volatile than Sunstone Hotel Investors. It trades about 0.05 of its potential returns per unit of risk. Sunstone Hotel Investors is currently generating about -0.08 per unit of risk. If you would invest  1,713  in Sotherly Hotels Series on October 20, 2024 and sell it today you would earn a total of  33.00  from holding Sotherly Hotels Series or generate 1.93% 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.  Sunstone Hotel Investors

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.

Sunstone Hotel Investors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish technical indicators, Sunstone Hotel displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sotherly Hotels and Sunstone Hotel

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

The idea behind Sotherly Hotels Series and Sunstone Hotel Investors 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.