Correlation Between HYDROFARM HLD and Sunstone Hotel

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

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

Diversification Opportunities for HYDROFARM HLD and Sunstone Hotel

0.33

Correlation Coefficient

HYDROFARM HLD  Sunstone Hotel

Weak diversification

The 3 months correlation between HYDROFARM and Sunstone is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding HYDROFARM HLD GRP and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors and HYDROFARM HLD 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 HYDROFARM HLD GRP are associated (or correlated) with Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of HYDROFARM HLD i.e., HYDROFARM HLD and Sunstone Hotel go up and down completely randomly.

Pair Corralation between HYDROFARM HLD and Sunstone Hotel

Assuming the 90 days trading horizon HYDROFARM HLD GRP is expected to generate 2.93 times more return on investment than Sunstone Hotel. However, HYDROFARM HLD is 2.93 times more volatile than Sunstone Hotel Investors. It trades about 0.23 of its potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.07 per unit of risk. If you would invest  40.00  in HYDROFARM HLD GRP on September 2, 2024 and sell it today you would earn a total of  37.00  from holding HYDROFARM HLD GRP or generate 92.5% return on investment over 90 days.

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

HYDROFARM HLD GRP  vs.  Sunstone Hotel Investors

HYDROFARM HLD GRP

Risk-Adjusted Performance

17 of 100

Solid

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

Sunstone Hotel Investors

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sunstone Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HYDROFARM HLD and Sunstone Hotel

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

The idea behind HYDROFARM HLD GRP and Sunstone Hotel Investors 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.