Correlation Between Choice Hotels and DOLFINES

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

By analyzing existing cross correlation between Choice Hotels International and DOLFINES SA EO, you can compare the effects of market volatilities on Choice Hotels and DOLFINES 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 Choice Hotels with a short position of DOLFINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choice Hotels and DOLFINES.

Diversification Opportunities for Choice Hotels and DOLFINES

0.67

Correlation Coefficient

Choice Hotels  DOLFINES

Poor diversification

The 3 months correlation between Choice and DOLFINES is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and DOLFINES SA EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOLFINES SA EO and Choice Hotels 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 Choice Hotels International are associated (or correlated) with DOLFINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOLFINES SA EO has no effect on the direction of Choice Hotels i.e., Choice Hotels and DOLFINES go up and down completely randomly.

Pair Corralation between Choice Hotels and DOLFINES

Assuming the 90 days horizon Choice Hotels is expected to generate 39.93 times less return on investment than DOLFINES. But when comparing it to its historical volatility, Choice Hotels International is 42.13 times less risky than DOLFINES. It trades about 0.2 of its potential returns per unit of risk. DOLFINES SA EO is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  50.00  in DOLFINES SA EO on September 18, 2024 and sell it today you would earn a total of  100.00  from holding DOLFINES SA EO or generate 200.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Choice Hotels International  vs.  DOLFINES SA EO

Choice Hotels Intern

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

DOLFINES SA EO

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DOLFINES SA EO are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DOLFINES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and DOLFINES

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

The idea behind Choice Hotels International and DOLFINES SA EO 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.