Correlation Between Acadia Realty and Chatham Lodging

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

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

Diversification Opportunities for Acadia Realty and Chatham Lodging

-0.07

Correlation Coefficient

Acadia Realty  Chatham Lodging

Good diversification

The 3 months correlation between Acadia and Chatham is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Acadia Realty Trust and Chatham Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Lodging Trust and Acadia Realty 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 Acadia Realty Trust are associated (or correlated) with Chatham Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Lodging Trust has no effect on the direction of Acadia Realty i.e., Acadia Realty and Chatham Lodging go up and down completely randomly.

Pair Corralation between Acadia Realty and Chatham Lodging

Considering the 90-day investment horizon Acadia Realty Trust is expected to generate 0.64 times more return on investment than Chatham Lodging. However, Acadia Realty Trust is 1.57 times less risky than Chatham Lodging. It trades about 0.21 of its potential returns per unit of risk. Chatham Lodging Trust is currently generating about -0.01 per unit of risk. If you would invest  1,748  in Acadia Realty Trust on June 22, 2024 and sell it today you would earn a total of  520.00  from holding Acadia Realty Trust or generate 29.75% return on investment over 90 days.

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

Acadia Realty Trust  vs.  Chatham Lodging Trust

Acadia Realty Trust

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Acadia Realty Trust are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking signals, Acadia Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Chatham Lodging Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Lodging Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Chatham Lodging may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Acadia Realty and Chatham Lodging

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

The idea behind Acadia Realty Trust and Chatham Lodging 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.