Correlation Between Ashford Hospitality and Chatham Lodging

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

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

Diversification Opportunities for Ashford Hospitality and Chatham Lodging

-0.39

Correlation Coefficient

Ashford Hospitality  Chatham Lodging

Very good diversification

The 3 months correlation between Ashford and Chatham is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ashford Hospitality Trust and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust and Ashford Hospitality 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 Ashford Hospitality Trust are associated (or correlated) with Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of Ashford Hospitality i.e., Ashford Hospitality and Chatham Lodging go up and down completely randomly.

Pair Corralation between Ashford Hospitality and Chatham Lodging

Assuming the 90 days trading horizon Ashford Hospitality Trust is expected to under-perform the Chatham Lodging. In addition to that, Ashford Hospitality is 1.26 times more volatile than Chatham Lodging Trust. It trades about -0.06 of its total potential returns per unit of risk. Chatham Lodging Trust is currently generating about 0.13 per unit of volatility. If you would invest  825.00  in Chatham Lodging Trust on September 16, 2024 and sell it today you would earn a total of  142.00  from holding Chatham Lodging Trust or generate 17.21% return on investment over 90 days.

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

Ashford Hospitality Trust  vs.  Chatham Lodging Trust

Ashford Hospitality Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ashford Hospitality Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Chatham Lodging Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Lodging Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Chatham Lodging unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ashford Hospitality and Chatham Lodging

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

The idea behind Ashford Hospitality Trust and Chatham Lodging Trust 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.