Correlation Between DiamondRock Hospitality and Ashford Hospitality

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

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

Diversification Opportunities for DiamondRock Hospitality and Ashford Hospitality

-0.74

Correlation Coefficient

DiamondRock Hospitality  Ashford Hospitality

Pay attention - limited upside

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

Pair Corralation between DiamondRock Hospitality and Ashford Hospitality

Assuming the 90 days trading horizon DiamondRock Hospitality is expected to generate 0.12 times more return on investment than Ashford Hospitality. However, DiamondRock Hospitality is 8.47 times less risky than Ashford Hospitality. It trades about 0.24 of its potential returns per unit of risk. Ashford Hospitality Trust is currently generating about -0.07 per unit of risk. If you would invest  2,496  in DiamondRock Hospitality on September 2, 2024 and sell it today you would earn a total of  130.00  from holding DiamondRock Hospitality or generate 5.21% return on investment over 90 days.

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

DiamondRock Hospitality  vs.  Ashford Hospitality Trust

DiamondRock Hospitality

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, DiamondRock Hospitality is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 inconsistent 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.

Pair Trading with DiamondRock Hospitality and Ashford Hospitality

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

The idea behind DiamondRock Hospitality and Ashford Hospitality 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..