Correlation Between Essential Properties and Diamondrock Hospitality

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

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

Diversification Opportunities for Essential Properties and Diamondrock Hospitality

-0.75

Correlation Coefficient

Essential Properties  Diamondrock Hospitality

Pay attention - limited upside

The 3 months correlation between Essential and Diamondrock is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Essential Properties Realty and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality and Essential Properties 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 Essential Properties Realty are associated (or correlated) with Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Essential Properties i.e., Essential Properties and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Essential Properties and Diamondrock Hospitality

Given the investment horizon of 90 days Essential Properties Realty is expected to generate 1.04 times more return on investment than Diamondrock Hospitality. However, Essential Properties is 1.04 times more volatile than Diamondrock Hospitality. It trades about 0.11 of its potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.15 per unit of risk. If you would invest  2,525  in Essential Properties Realty on March 13, 2024 and sell it today you would earn a total of  221.00  from holding Essential Properties Realty or generate 8.75% return on investment over 90 days.

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

Essential Properties Realty  vs.  Diamondrock Hospitality

Essential Properties

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Essential Properties may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Diamondrock Hospitality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Essential Properties and Diamondrock Hospitality

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

The idea behind Essential Properties Realty and Diamondrock Hospitality 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.