Correlation Between Host Hotels and Service Properties

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

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

Diversification Opportunities for Host Hotels and Service Properties

-0.23

Correlation Coefficient

Host Hotels  Service Properties

Very good diversification

The 3 months correlation between Host and Service is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Service Properties Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Service Properties Trust and Host 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 Host Hotels Resorts are associated (or correlated) with Service Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Service Properties Trust has no effect on the direction of Host Hotels i.e., Host Hotels and Service Properties go up and down completely randomly.

Pair Corralation between Host Hotels and Service Properties

Considering the 90-day investment horizon Host Hotels Resorts is expected to under-perform the Service Properties. But the stock apears to be less risky and, when comparing its historical volatility, Host Hotels Resorts is 1.29 times less risky than Service Properties. The stock trades about -0.3 of its potential returns per unit of risk. The Service Properties Trust is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  639.00  in Service Properties Trust on February 2, 2024 and sell it today you would lose (35.50) from holding Service Properties Trust or give up 5.56% of portfolio value over 90 days.

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

Host Hotels Resorts  vs.  Service Properties Trust

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Host Hotels is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Host Hotels and Service Properties

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

The idea behind Host Hotels Resorts and Service Properties 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 Global Correlations module to find global opportunities by holding instruments from different markets.