Correlation Between Sotherly Hotels and Diamondrock Hospitality

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

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

Diversification Opportunities for Sotherly Hotels and Diamondrock Hospitality

-0.19

Correlation Coefficient

Sotherly Hotels  Diamondrock Hospitality

Good diversification

The 3 months correlation between Sotherly and Diamondrock is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Sotherly Hotels Pref and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Pref are associated (or correlated) with Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Sotherly Hotels i.e., Sotherly Hotels and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Sotherly Hotels and Diamondrock Hospitality

Assuming the 90 days horizon Sotherly Hotels Pref is expected to generate 1.08 times more return on investment than Diamondrock Hospitality. However, Sotherly Hotels is 1.08 times more volatile than Diamondrock Hospitality. It trades about 0.0 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.11 per unit of risk. If you would invest  1,710  in Sotherly Hotels Pref on December 2, 2024 and sell it today you would lose (5.00) from holding Sotherly Hotels Pref or give up 0.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Sotherly Hotels Pref  vs.  Diamondrock Hospitality

Sotherly Hotels Pref

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sotherly Hotels Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sotherly Hotels is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Sotherly Hotels and Diamondrock Hospitality

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

The idea behind Sotherly Hotels Pref and Diamondrock Hospitality 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.