Correlation Between Sunstone Hotel and InterContinental

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

Diversification Opportunities for Sunstone Hotel and InterContinental

0.82

Correlation Coefficient

Sunstone Hotel  InterContinental

Very poor diversification

The 3 months correlation between Sunstone and InterContinental is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental 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 InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and InterContinental go up and down completely randomly.

Pair Corralation between Sunstone Hotel and InterContinental

Assuming the 90 days horizon Sunstone Hotel is expected to generate 1.01 times less return on investment than InterContinental. In addition to that, Sunstone Hotel is 1.35 times more volatile than InterContinental Hotels Group. It trades about 0.19 of its total potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.26 per unit of volatility. If you would invest  9,350  in InterContinental Hotels Group on September 17, 2024 and sell it today you would earn a total of  2,650  from holding InterContinental Hotels Group or generate 28.34% 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.  InterContinental Hotels Group

Sunstone Hotel Investors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

InterContinental Hotels

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunstone Hotel and InterContinental

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

The idea behind Sunstone Hotel Investors and InterContinental Hotels Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.