Correlation Between RLJ Lodging and Sotherly Hotels

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

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

Diversification Opportunities for RLJ Lodging and Sotherly Hotels

-0.66

Correlation Coefficient

RLJ Lodging  Sotherly Hotels

Excellent diversification

The 3 months correlation between RLJ and Sotherly is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Sotherly Hotels Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels Series and RLJ Lodging 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 RLJ Lodging Trust 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 Series has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Sotherly Hotels go up and down completely randomly.

Pair Corralation between RLJ Lodging and Sotherly Hotels

Considering the 90-day investment horizon RLJ Lodging Trust is expected to generate 0.97 times more return on investment than Sotherly Hotels. However, RLJ Lodging Trust is 1.03 times less risky than Sotherly Hotels. It trades about 0.03 of its potential returns per unit of risk. Sotherly Hotels Series is currently generating about -0.03 per unit of risk. If you would invest  938.00  in RLJ Lodging Trust on September 9, 2024 and sell it today you would earn a total of  105.00  from holding RLJ Lodging Trust or generate 11.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.35%
Values	Daily Returns

RLJ Lodging Trust  vs.  Sotherly Hotels Series

RLJ Lodging Trust

Risk-Adjusted Performance

12 of 100

Good

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

Sotherly Hotels Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sotherly Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RLJ Lodging and Sotherly Hotels

The main advantage of trading using opposite RLJ Lodging and Sotherly Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging 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 RLJ Lodging Trust and Sotherly Hotels Series 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.