Correlation Between Ashford Hospitality and Equity Commonwealth

Can any of the company-specific risk be diversified away by investing in both Ashford Hospitality and Equity Commonwealth 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 Equity Commonwealth 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 Equity Commonwealth, you can compare the effects of market volatilities on Ashford Hospitality and Equity Commonwealth 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 Equity Commonwealth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ashford Hospitality and Equity Commonwealth.

Diversification Opportunities for Ashford Hospitality and Equity Commonwealth

-0.74

Correlation Coefficient

Ashford Hospitality  Equity Commonwealth

Pay attention - limited upside

The 3 months correlation between Ashford and Equity is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ashford Hospitality Trust and Equity Commonwealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Commonwealth 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 Equity Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Commonwealth has no effect on the direction of Ashford Hospitality i.e., Ashford Hospitality and Equity Commonwealth go up and down completely randomly.

Pair Corralation between Ashford Hospitality and Equity Commonwealth

Assuming the 90 days trading horizon Ashford Hospitality Trust is expected to under-perform the Equity Commonwealth. In addition to that, Ashford Hospitality is 17.57 times more volatile than Equity Commonwealth. It trades about -0.06 of its total potential returns per unit of risk. Equity Commonwealth is currently generating about 0.11 per unit of volatility. If you would invest  2,474  in Equity Commonwealth on September 4, 2024 and sell it today you would earn a total of  31.00  from holding Equity Commonwealth or generate 1.25% return on investment over 90 days.

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

Ashford Hospitality Trust  vs.  Equity Commonwealth

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 strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Equity Commonwealth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Commonwealth are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Equity Commonwealth is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ashford Hospitality and Equity Commonwealth

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

The idea behind Ashford Hospitality Trust and Equity Commonwealth 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 Transaction History module to view history of all your transactions and understand their impact on performance.