Correlation Between RLJ Lodging and TransAct Technologies

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

Diversification Opportunities for RLJ Lodging and TransAct Technologies

-0.2

Correlation Coefficient

RLJ Lodging  TransAct Technologies

Good diversification

The 3 months correlation between RLJ and TransAct is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and TransAct Technologies Incorpor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAct Technologies 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 TransAct Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAct Technologies has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and TransAct Technologies go up and down completely randomly.

Pair Corralation between RLJ Lodging and TransAct Technologies

Considering the 90-day investment horizon RLJ Lodging Trust is expected to generate 0.74 times more return on investment than TransAct Technologies. However, RLJ Lodging Trust is 1.36 times less risky than TransAct Technologies. It trades about 0.1 of its potential returns per unit of risk. TransAct Technologies Incorporated is currently generating about 0.0 per unit of risk. If you would invest  926.00  in RLJ Lodging Trust on September 2, 2024 and sell it today you would earn a total of  95.00  from holding RLJ Lodging Trust or generate 10.26% return on investment over 90 days.

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

RLJ Lodging Trust  vs.  TransAct Technologies Incorpor

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 January 2025.

TransAct Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TransAct Technologies Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, TransAct Technologies is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RLJ Lodging and TransAct Technologies

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

The idea behind RLJ Lodging Trust and TransAct Technologies Incorporated 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.