Correlation Between LuxUrban Hotels and Huazhu

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

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

Diversification Opportunities for LuxUrban Hotels and Huazhu

-0.77

Correlation Coefficient

LuxUrban Hotels  Huazhu

Pay attention - limited upside

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

Pair Corralation between LuxUrban Hotels and Huazhu

Given the investment horizon of 90 days LuxUrban Hotels is expected to under-perform the Huazhu. In addition to that, LuxUrban Hotels is 4.07 times more volatile than Huazhu Group. It trades about -0.13 of its total potential returns per unit of risk. Huazhu Group is currently generating about 0.04 per unit of volatility. If you would invest  4,026  in Huazhu Group on February 4, 2024 and sell it today you would earn a total of  72.00  from holding Huazhu Group or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

LuxUrban Hotels  vs.  Huazhu Group

LuxUrban Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LuxUrban Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Huazhu Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Huazhu Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Huazhu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LuxUrban Hotels and Huazhu

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

The idea behind LuxUrban Hotels and Huazhu Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.