Correlation Between Sunstone Hotel and NH HOTEL

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

Diversification Opportunities for Sunstone Hotel and NH HOTEL

0.21

Correlation Coefficient

Sunstone Hotel  NH HOTEL

Modest diversification

The 3 months correlation between Sunstone and NH5 is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and NH HOTEL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NH HOTEL GROUP 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 NH HOTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NH HOTEL GROUP has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and NH HOTEL go up and down completely randomly.

Pair Corralation between Sunstone Hotel and NH HOTEL

Assuming the 90 days horizon Sunstone Hotel Investors is expected to under-perform the NH HOTEL. In addition to that, Sunstone Hotel is 1.88 times more volatile than NH HOTEL GROUP. It trades about -0.23 of its total potential returns per unit of risk. NH HOTEL GROUP is currently generating about 0.14 per unit of volatility. If you would invest  614.00  in NH HOTEL GROUP on December 4, 2024 and sell it today you would earn a total of  14.00  from holding NH HOTEL GROUP or generate 2.28% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  NH HOTEL GROUP

Sunstone Hotel Investors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sunstone Hotel Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NH HOTEL GROUP

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NH HOTEL GROUP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NH HOTEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunstone Hotel and NH HOTEL

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

The idea behind Sunstone Hotel Investors and NH HOTEL 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 Stocks Directory module to find actively traded stocks across global markets.