Correlation Between Sunstone Hotel and INTERCONT HOTELS

Can any of the company-specific risk be diversified away by investing in both Sunstone Hotel and INTERCONT 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 Sunstone Hotel and INTERCONT HOTELS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sunstone Hotel Investors and INTERCONT HOTELS, you can compare the effects of market volatilities on Sunstone Hotel and INTERCONT 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 Sunstone Hotel with a short position of INTERCONT HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunstone Hotel and INTERCONT HOTELS.

Diversification Opportunities for Sunstone Hotel and INTERCONT HOTELS

0.84

Correlation Coefficient

Sunstone Hotel  INTERCONT HOTELS

Very poor diversification

The 3 months correlation between Sunstone and INTERCONT is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and INTERCONT HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERCONT HOTELS and Sunstone Hotel 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 Sunstone Hotel Investors are associated (or correlated) with INTERCONT HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERCONT HOTELS has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and INTERCONT HOTELS go up and down completely randomly.

Pair Corralation between Sunstone Hotel and INTERCONT HOTELS

Assuming the 90 days horizon Sunstone Hotel Investors is expected to generate 0.45 times more return on investment than INTERCONT HOTELS. However, Sunstone Hotel Investors is 2.23 times less risky than INTERCONT HOTELS. It trades about 0.0 of its potential returns per unit of risk. INTERCONT HOTELS is currently generating about -0.04 per unit of risk. If you would invest  1,140  in Sunstone Hotel Investors on October 5, 2024 and sell it today you would earn a total of  0.00  from holding Sunstone Hotel Investors or generate 0.0% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  INTERCONT HOTELS

Sunstone Hotel Investors

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sunstone Hotel Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

INTERCONT HOTELS

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days INTERCONT HOTELS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, INTERCONT HOTELS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunstone Hotel and INTERCONT HOTELS

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

The idea behind Sunstone Hotel Investors and INTERCONT HOTELS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.