Correlation Between Marriott International and PharmChem

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

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

Diversification Opportunities for Marriott International and PharmChem

-0.72

Correlation Coefficient

Marriott International  PharmChem

Pay attention - limited upside

The 3 months correlation between Marriott and PharmChem is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Marriott International and PharmChem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmChem 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 PharmChem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmChem has no effect on the direction of Marriott International i.e., Marriott International and PharmChem go up and down completely randomly.

Pair Corralation between Marriott International and PharmChem

Considering the 90-day investment horizon Marriott International is expected to generate 3.42 times more return on investment than PharmChem. However, Marriott International is 3.42 times more volatile than PharmChem. It trades about -0.04 of its potential returns per unit of risk. PharmChem is currently generating about -0.21 per unit of risk. If you would invest  28,800  in Marriott International on September 24, 2024 and sell it today you would lose (404.00) from holding Marriott International or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Marriott International  vs.  PharmChem

Marriott International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Marriott International reported solid returns over the last few months and may actually be approaching a breakup point.

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Marriott International and PharmChem

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

The idea behind Marriott International and PharmChem 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.