Correlation Between Sotherly Hotels and Xenia Hotels

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

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

Diversification Opportunities for Sotherly Hotels and Xenia Hotels

-0.2

Correlation Coefficient

Sotherly Hotels  Xenia Hotels

Good diversification

The 3 months correlation between Sotherly and Xenia is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sotherly Hotels Pref 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 Sotherly Hotels 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 Sotherly Hotels Pref 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 Sotherly Hotels i.e., Sotherly Hotels and Xenia Hotels go up and down completely randomly.

Pair Corralation between Sotherly Hotels and Xenia Hotels

Assuming the 90 days horizon Sotherly Hotels Pref is expected to under-perform the Xenia Hotels. But the preferred stock apears to be less risky and, when comparing its historical volatility, Sotherly Hotels Pref is 1.36 times less risky than Xenia Hotels. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Xenia Hotels Resorts is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,413  in Xenia Hotels Resorts on August 30, 2024 and sell it today you would earn a total of  122.00  from holding Xenia Hotels Resorts or generate 8.63% return on investment over 90 days.

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

Sotherly Hotels Pref  vs.  Xenia Hotels Resorts

Sotherly Hotels Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sotherly Hotels 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 Sotherly Hotels and Xenia Hotels

The main advantage of trading using opposite Sotherly Hotels and Xenia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sotherly Hotels 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 Sotherly Hotels Pref 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.