Correlation Between Elme Communities and Park Hotels

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

By analyzing existing cross correlation between Elme Communities and Park Hotels Resorts, you can compare the effects of market volatilities on Elme Communities and Park Hotels 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 Elme Communities with a short position of Park Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elme Communities and Park Hotels.

Diversification Opportunities for Elme Communities and Park Hotels

-0.17

Correlation Coefficient

Elme Communities  Park Hotels

Good diversification

The 3 months correlation between Elme and Park is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Elme Communities and Park Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Hotels Resorts and Elme Communities 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 Elme Communities are associated (or correlated) with Park Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Hotels Resorts has no effect on the direction of Elme Communities i.e., Elme Communities and Park Hotels go up and down completely randomly.

Pair Corralation between Elme Communities and Park Hotels

Given the investment horizon of 90 days Elme Communities is expected to under-perform the Park Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Elme Communities is 1.34 times less risky than Park Hotels. The stock trades about -0.13 of its potential returns per unit of risk. The Park Hotels Resorts is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,544  in Park Hotels Resorts on September 19, 2024 and sell it today you would lose (103.00) from holding Park Hotels Resorts or give up 6.67% of portfolio value over 90 days.

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

Elme Communities  vs.  Park Hotels Resorts

Elme Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elme Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Park Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Park Hotels is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Elme Communities and Park Hotels

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

The idea behind Elme Communities and Park Hotels Resorts 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.