Correlation Between United States and DiamondRock Hospitality

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

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

Diversification Opportunities for United States and DiamondRock Hospitality

0.12

Correlation Coefficient

United States  DiamondRock Hospitality

Average diversification

The 3 months correlation between United and DiamondRock is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality and United States 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 United States Steel 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 United States i.e., United States and DiamondRock Hospitality go up and down completely randomly.

Pair Corralation between United States and DiamondRock Hospitality

Assuming the 90 days trading horizon United States Steel is expected to under-perform the DiamondRock Hospitality. In addition to that, United States is 1.9 times more volatile than DiamondRock Hospitality. It trades about -0.44 of its total potential returns per unit of risk. DiamondRock Hospitality is currently generating about 0.06 per unit of volatility. If you would invest  875.00  in DiamondRock Hospitality on September 23, 2024 and sell it today you would earn a total of  15.00  from holding DiamondRock Hospitality or generate 1.71% return on investment over 90 days.

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

United States Steel  vs.  DiamondRock Hospitality

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

DiamondRock Hospitality

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DiamondRock Hospitality reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and DiamondRock Hospitality

The main advantage of trading using opposite United States and DiamondRock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.