Correlation Between RLJ Lodging and ATT

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and ATT 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 ATT 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 ATT Inc, you can compare the effects of market volatilities on RLJ Lodging and ATT 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 ATT. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and ATT.

Diversification Opportunities for RLJ Lodging and ATT

0.42

Correlation Coefficient

RLJ Lodging  ATT

Very weak diversification

The 3 months correlation between RLJ and ATT is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and ATT go up and down completely randomly.

Pair Corralation between RLJ Lodging and ATT

Considering the 90-day investment horizon RLJ Lodging is expected to generate 1.49 times less return on investment than ATT. In addition to that, RLJ Lodging is 1.36 times more volatile than ATT Inc. It trades about 0.1 of its total potential returns per unit of risk. ATT Inc is currently generating about 0.19 per unit of volatility. If you would invest  2,017  in ATT Inc on August 31, 2024 and sell it today you would earn a total of  310.00  from holding ATT Inc or generate 15.37% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  ATT Inc

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.

ATT Inc

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively sluggish basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLJ Lodging and ATT

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

The idea behind RLJ Lodging Trust and ATT Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.