Correlation Between Taylor Morrison and DiamondRock Hospitality

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

By analyzing existing cross correlation between Taylor Morrison Home and DiamondRock Hospitality, you can compare the effects of market volatilities on Taylor Morrison 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 Taylor Morrison with a short position of DiamondRock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taylor Morrison and DiamondRock Hospitality.

Diversification Opportunities for Taylor Morrison and DiamondRock Hospitality

0.4

Correlation Coefficient

Taylor Morrison  DiamondRock Hospitality

Very weak diversification

The 3 months correlation between Taylor and DiamondRock is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Morrison Home and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality and Taylor Morrison 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 Taylor Morrison Home 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 Taylor Morrison i.e., Taylor Morrison and DiamondRock Hospitality go up and down completely randomly.

Pair Corralation between Taylor Morrison and DiamondRock Hospitality

Assuming the 90 days trading horizon Taylor Morrison Home is expected to under-perform the DiamondRock Hospitality. In addition to that, Taylor Morrison is 1.62 times more volatile than DiamondRock Hospitality. It trades about -0.11 of its total potential returns per unit of risk. DiamondRock Hospitality is currently generating about -0.16 per unit of volatility. If you would invest  881.00  in DiamondRock Hospitality on December 4, 2024 and sell it today you would lose (101.00) from holding DiamondRock Hospitality or give up 11.46% of portfolio value over 90 days.

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

Taylor Morrison Home  vs.  DiamondRock Hospitality

Taylor Morrison Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Taylor Morrison and DiamondRock Hospitality

The main advantage of trading using opposite Taylor Morrison and DiamondRock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taylor Morrison 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 Taylor Morrison Home 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.