Correlation Between Wyndham Hotels and Service International

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

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

Diversification Opportunities for Wyndham Hotels and Service International

0.77

Correlation Coefficient

Wyndham Hotels  Service International

Poor diversification

The 3 months correlation between Wyndham and Service is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and Service International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Service International and Wyndham 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 Wyndham Hotels Resorts are associated (or correlated) with Service International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Service International has no effect on the direction of Wyndham Hotels i.e., Wyndham Hotels and Service International go up and down completely randomly.

Pair Corralation between Wyndham Hotels and Service International

Allowing for the 90-day total investment horizon Wyndham Hotels is expected to generate 1.64 times less return on investment than Service International. But when comparing it to its historical volatility, Wyndham Hotels Resorts is 1.13 times less risky than Service International. It trades about 0.24 of its potential returns per unit of risk. Service International is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  7,646  in Service International on August 30, 2024 and sell it today you would earn a total of  1,214  from holding Service International or generate 15.88% return on investment over 90 days.

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

Wyndham Hotels Resorts  vs.  Service International

Wyndham Hotels Resorts

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical indicators, Wyndham Hotels demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Service International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Service International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental indicators, Service International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wyndham Hotels and Service International

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

The idea behind Wyndham Hotels Resorts and Service International 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.