Correlation Between Air Lease and Diamondrock Hospitality

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

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

Diversification Opportunities for Air Lease and Diamondrock Hospitality

0.88

Correlation Coefficient

Air Lease  Diamondrock Hospitality

Very poor diversification

The 3 months correlation between Air and Diamondrock is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Diamondrock Hospitality Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and Air Lease 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 Air Lease 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 Air Lease i.e., Air Lease and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Air Lease and Diamondrock Hospitality

Assuming the 90 days trading horizon Air Lease is expected to generate 0.84 times more return on investment than Diamondrock Hospitality. However, Air Lease is 1.19 times less risky than Diamondrock Hospitality. It trades about 0.21 of its potential returns per unit of risk. Diamondrock Hospitality Co is currently generating about 0.16 per unit of risk. If you would invest  3,840  in Air Lease on September 12, 2024 and sell it today you would earn a total of  900.00  from holding Air Lease or generate 23.44% return on investment over 90 days.

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

Air Lease  vs.  Diamondrock Hospitality Co

Air Lease

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Air Lease reported solid returns over the last few months and may actually be approaching a breakup point.

Diamondrock Hospitality

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diamondrock Hospitality Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Diamondrock Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Lease and Diamondrock Hospitality

The main advantage of trading using opposite Air Lease and Diamondrock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Lease 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 Air Lease and Diamondrock Hospitality Co 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.