Correlation Between National Retail and Sunstone Hotel

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

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

Diversification Opportunities for National Retail and Sunstone Hotel

-0.31

Correlation Coefficient

National Retail  Sunstone Hotel

Very good diversification

The 3 months correlation between National and Sunstone is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors and National Retail 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 National Retail Properties are associated (or correlated) with Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of National Retail i.e., National Retail and Sunstone Hotel go up and down completely randomly.

Pair Corralation between National Retail and Sunstone Hotel

Considering the 90-day investment horizon National Retail Properties is expected to under-perform the Sunstone Hotel. But the stock apears to be less risky and, when comparing its historical volatility, National Retail Properties is 1.16 times less risky than Sunstone Hotel. The stock trades about -0.06 of its potential returns per unit of risk. The Sunstone Hotel Investors is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,034  in Sunstone Hotel Investors on August 31, 2024 and sell it today you would earn a total of  41.00  from holding Sunstone Hotel Investors or generate 3.97% return on investment over 90 days.

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

National Retail Properties  vs.  Sunstone Hotel Investors

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sunstone Hotel Investors

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish technical indicators, Sunstone Hotel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with National Retail and Sunstone Hotel

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

The idea behind National Retail Properties and Sunstone Hotel Investors 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.