Correlation Between Liberty Latin and RLJ Lodging

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

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

Diversification Opportunities for Liberty Latin and RLJ Lodging

-0.73

Correlation Coefficient

Liberty Latin  RLJ Lodging

Pay attention - limited upside

The 3 months correlation between Liberty and RLJ is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Latin America and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust and Liberty Latin 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 Liberty Latin America are associated (or correlated) with RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of Liberty Latin i.e., Liberty Latin and RLJ Lodging go up and down completely randomly.

Pair Corralation between Liberty Latin and RLJ Lodging

Given the investment horizon of 90 days Liberty Latin America is expected to under-perform the RLJ Lodging. In addition to that, Liberty Latin is 2.17 times more volatile than RLJ Lodging Trust. It trades about -0.11 of its total potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.1 per unit of volatility. If you would invest  926.00  in RLJ Lodging Trust on August 31, 2024 and sell it today you would earn a total of  88.00  from holding RLJ Lodging Trust or generate 9.5% return on investment over 90 days.

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

Liberty Latin America  vs.  RLJ Lodging Trust

Liberty Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Latin America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite sluggish performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

RLJ Lodging Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLJ Lodging Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, RLJ Lodging may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Liberty Latin and RLJ Lodging

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

The idea behind Liberty Latin America and RLJ Lodging 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.