Correlation Between Summit Hotel and Sotherly Hotels

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

By analyzing existing cross correlation between Summit Hotel Properties and Sotherly Hotels PR, you can compare the effects of market volatilities on Summit Hotel and Sotherly 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 Summit Hotel with a short position of Sotherly Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Hotel and Sotherly Hotels.

Diversification Opportunities for Summit Hotel and Sotherly Hotels

-0.38

Correlation Coefficient

Summit Hotel  Sotherly Hotels

Very good diversification

The 3 months correlation between Summit and Sotherly is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Sotherly Hotels PR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels PR and Summit Hotel 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 Summit Hotel Properties are associated (or correlated) with Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels PR has no effect on the direction of Summit Hotel i.e., Summit Hotel and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Summit Hotel and Sotherly Hotels

Assuming the 90 days trading horizon Summit Hotel Properties is expected to generate 0.93 times more return on investment than Sotherly Hotels. However, Summit Hotel Properties is 1.08 times less risky than Sotherly Hotels. It trades about 0.08 of its potential returns per unit of risk. Sotherly Hotels PR is currently generating about -0.05 per unit of risk. If you would invest  2,064  in Summit Hotel Properties on September 15, 2024 and sell it today you would earn a total of  105.00  from holding Summit Hotel Properties or generate 5.09% return on investment over 90 days.

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

Summit Hotel Properties  vs.  Sotherly Hotels PR

Summit Hotel Properties

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Hotel Properties are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Summit Hotel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sotherly Hotels PR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels PR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sotherly Hotels is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Summit Hotel and Sotherly Hotels

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

The idea behind Summit Hotel Properties and Sotherly Hotels PR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.