Correlation Between Sunstone Hotel and Ross Stores

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

Diversification Opportunities for Sunstone Hotel and Ross Stores

0.8

Correlation Coefficient

Sunstone Hotel  Ross Stores

Very poor diversification

The 3 months correlation between Sunstone and Ross is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Sunstone Hotel i.e., Sunstone Hotel and Ross Stores go up and down completely randomly.

Pair Corralation between Sunstone Hotel and Ross Stores

Assuming the 90 days horizon Sunstone Hotel is expected to generate 1.46 times less return on investment than Ross Stores. In addition to that, Sunstone Hotel is 1.17 times more volatile than Ross Stores. It trades about 0.03 of its total potential returns per unit of risk. Ross Stores is currently generating about 0.05 per unit of volatility. If you would invest  10,391  in Ross Stores on September 26, 2024 and sell it today you would earn a total of  3,813  from holding Ross Stores or generate 36.7% 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.  Ross Stores

Sunstone Hotel Investors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Ross Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sunstone Hotel and Ross Stores

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

The idea behind Sunstone Hotel Investors and Ross Stores 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.