Correlation Between Volaris and Summit Hotel

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

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

Diversification Opportunities for Volaris and Summit Hotel

-0.17

Correlation Coefficient

Volaris  Summit Hotel

Good diversification

The 3 months correlation between Volaris and Summit is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Volaris and Summit Hotel Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Hotel Properties and Volaris 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 Volaris are associated (or correlated) with Summit Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Hotel Properties has no effect on the direction of Volaris i.e., Volaris and Summit Hotel go up and down completely randomly.

Pair Corralation between Volaris and Summit Hotel

Given the investment horizon of 90 days Volaris is expected to generate 2.76 times less return on investment than Summit Hotel. But when comparing it to its historical volatility, Volaris is 1.12 times less risky than Summit Hotel. It trades about 0.07 of its potential returns per unit of risk. Summit Hotel Properties is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  637.00  in Summit Hotel Properties on September 23, 2024 and sell it today you would earn a total of  45.00  from holding Summit Hotel Properties or generate 7.06% return on investment over 90 days.

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

Volaris  vs.  Summit Hotel Properties

Volaris

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volaris are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Volaris unveiled solid returns over the last few months and may actually be approaching a breakup point.

Summit Hotel Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Volaris and Summit Hotel

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

The idea behind Volaris and Summit Hotel Properties 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.