Correlation Between Sunstone Hotel and Xenia Hotels

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

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

Diversification Opportunities for Sunstone Hotel and Xenia Hotels

0.81

Correlation Coefficient

Sunstone Hotel  Xenia Hotels

Very poor diversification

The 3 months correlation between Sunstone and Xenia is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and Xenia Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xenia Hotels Resorts and Sunstone Hotel 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 Sunstone Hotel Investors are associated (or correlated) with Xenia Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xenia Hotels Resorts has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and Xenia Hotels go up and down completely randomly.

Pair Corralation between Sunstone Hotel and Xenia Hotels

Considering the 90-day investment horizon Sunstone Hotel is expected to generate 1.09 times less return on investment than Xenia Hotels. But when comparing it to its historical volatility, Sunstone Hotel Investors is 1.12 times less risky than Xenia Hotels. It trades about 0.12 of its potential returns per unit of risk. Xenia Hotels Resorts is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,461  in Xenia Hotels Resorts on August 30, 2024 and sell it today you would earn a total of  74.00  from holding Xenia Hotels Resorts or generate 5.07% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  Xenia Hotels Resorts

Sunstone Hotel Investors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Sunstone Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Xenia Hotels Resorts

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xenia Hotels Resorts are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Xenia Hotels may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Sunstone Hotel and Xenia Hotels

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

The idea behind Sunstone Hotel Investors and Xenia Hotels Resorts 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 CEOs Directory module to screen CEOs from public companies around the world.