Correlation Between Service Properties and Xenia Hotels

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

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

Diversification Opportunities for Service Properties and Xenia Hotels

-0.38

Correlation Coefficient

Service Properties  Xenia Hotels

Very good diversification

The 3 months correlation between Service and Xenia is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Service Properties Trust and Xenia Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xenia Hotels Resorts and Service Properties 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 Service Properties Trust are associated (or correlated) with Xenia Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xenia Hotels Resorts has no effect on the direction of Service Properties i.e., Service Properties and Xenia Hotels go up and down completely randomly.

Pair Corralation between Service Properties and Xenia Hotels

Considering the 90-day investment horizon Service Properties Trust is expected to under-perform the Xenia Hotels. In addition to that, Service Properties is 2.71 times more volatile than Xenia Hotels Resorts. It trades about -0.28 of its total potential returns per unit of risk. Xenia Hotels Resorts is currently generating about 0.02 per unit of volatility. If you would invest  1,529  in Xenia Hotels Resorts on September 4, 2024 and sell it today you would earn a total of  12.00  from holding Xenia Hotels Resorts or generate 0.78% return on investment over 90 days.

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

Service Properties Trust  vs.  Xenia Hotels Resorts

Service Properties Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Service Properties Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Xenia Hotels Resorts

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xenia Hotels Resorts are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish technical indicators, Xenia Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Service Properties and Xenia Hotels

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

The idea behind Service Properties Trust and Xenia Hotels Resorts 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.