Correlation Between Sunstone Hotel and American Shipping

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

Diversification Opportunities for Sunstone Hotel and American Shipping

0.42

Correlation Coefficient

Sunstone Hotel  American Shipping

Very weak diversification

The 3 months correlation between Sunstone and American is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and American Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Shipping 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 American Shipping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Shipping has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and American Shipping go up and down completely randomly.

Pair Corralation between Sunstone Hotel and American Shipping

Assuming the 90 days horizon Sunstone Hotel is expected to generate 4.86 times less return on investment than American Shipping. But when comparing it to its historical volatility, Sunstone Hotel Investors is 2.77 times less risky than American Shipping. It trades about 0.07 of its potential returns per unit of risk. American Shipping is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  58.00  in American Shipping on October 8, 2024 and sell it today you would earn a total of  168.00  from holding American Shipping or generate 289.66% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  American Shipping

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 uncertain basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

American Shipping

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Shipping are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Shipping reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunstone Hotel and American Shipping

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

The idea behind Sunstone Hotel Investors and American Shipping 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.