Correlation Between Marriott International and SSE PLC

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

By analyzing existing cross correlation between Marriott International and SSE PLC ADR, you can compare the effects of market volatilities on Marriott International and SSE PLC 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 Marriott International with a short position of SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marriott International and SSE PLC.

Diversification Opportunities for Marriott International and SSE PLC

-0.79

Correlation Coefficient

Marriott International  SSE PLC

Pay attention - limited upside

The 3 months correlation between Marriott and SSE is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Marriott International and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR and Marriott International 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 Marriott International are associated (or correlated) with SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of Marriott International i.e., Marriott International and SSE PLC go up and down completely randomly.

Pair Corralation between Marriott International and SSE PLC

Assuming the 90 days horizon Marriott International is expected to generate 1.03 times more return on investment than SSE PLC. However, Marriott International is 1.03 times more volatile than SSE PLC ADR. It trades about -0.03 of its potential returns per unit of risk. SSE PLC ADR is currently generating about -0.28 per unit of risk. If you would invest  27,005  in Marriott International on September 23, 2024 and sell it today you would lose (295.00) from holding Marriott International or give up 1.09% of portfolio value over 90 days.

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

Marriott International  vs.  SSE PLC ADR

Marriott International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Marriott International reported solid returns over the last few months and may actually be approaching a breakup point.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Marriott International and SSE PLC

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

The idea behind Marriott International and SSE PLC ADR 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.