Correlation Between Food Life and DiamondRock Hospitality

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

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

Diversification Opportunities for Food Life and DiamondRock Hospitality

0.71

Correlation Coefficient

Food Life  DiamondRock Hospitality

Poor diversification

The 3 months correlation between Food and DiamondRock is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality and Food Life 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 Food Life Companies 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 Food Life i.e., Food Life and DiamondRock Hospitality go up and down completely randomly.

Pair Corralation between Food Life and DiamondRock Hospitality

Assuming the 90 days horizon Food Life Companies is expected to generate 0.35 times more return on investment than DiamondRock Hospitality. However, Food Life Companies is 2.83 times less risky than DiamondRock Hospitality. It trades about 0.23 of its potential returns per unit of risk. DiamondRock Hospitality is currently generating about 0.07 per unit of risk. If you would invest  1,690  in Food Life Companies on September 4, 2024 and sell it today you would earn a total of  470.00  from holding Food Life Companies or generate 27.81% return on investment over 90 days.

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

Food Life Companies  vs.  DiamondRock Hospitality

Food Life Companies

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

DiamondRock Hospitality

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DiamondRock Hospitality reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Food Life and DiamondRock Hospitality

The main advantage of trading using opposite Food Life and DiamondRock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Food Life 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 Food Life Companies 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.