Correlation Between Service Properties and Pebblebrook Hotel

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

By analyzing existing cross correlation between Service Properties Trust and Pebblebrook Hotel Trust, you can compare the effects of market volatilities on Service Properties and Pebblebrook Hotel 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 Service Properties with a short position of Pebblebrook Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Service Properties and Pebblebrook Hotel.

Diversification Opportunities for Service Properties and Pebblebrook Hotel

0.27

Correlation Coefficient

Service Properties  Pebblebrook Hotel

Modest diversification

The 3 months correlation between Service and Pebblebrook is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Service Properties Trust and Pebblebrook Hotel Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pebblebrook Hotel Trust and Service Properties 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 Service Properties Trust are associated (or correlated) with Pebblebrook Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pebblebrook Hotel Trust has no effect on the direction of Service Properties i.e., Service Properties and Pebblebrook Hotel go up and down completely randomly.

Pair Corralation between Service Properties and Pebblebrook Hotel

Considering the 90-day investment horizon Service Properties Trust is expected to under-perform the Pebblebrook Hotel. In addition to that, Service Properties is 1.73 times more volatile than Pebblebrook Hotel Trust. It trades about -0.18 of its total potential returns per unit of risk. Pebblebrook Hotel Trust is currently generating about 0.1 per unit of volatility. If you would invest  1,297  in Pebblebrook Hotel Trust on September 4, 2024 and sell it today you would earn a total of  176.00  from holding Pebblebrook Hotel Trust or generate 13.57% return on investment over 90 days.

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

Service Properties Trust  vs.  Pebblebrook Hotel Trust

Service Properties Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Service Properties Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pebblebrook Hotel Trust

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pebblebrook Hotel Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, Pebblebrook Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Service Properties and Pebblebrook Hotel

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

The idea behind Service Properties Trust and Pebblebrook Hotel Trust 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.