Correlation Between Hersha Hospitality and Ellington Residential

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

By analyzing existing cross correlation between Hersha Hospitality Trust and Ellington Residential Mortgage, you can compare the effects of market volatilities on Hersha Hospitality and Ellington Residential 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 Hersha Hospitality with a short position of Ellington Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hersha Hospitality and Ellington Residential.

Diversification Opportunities for Hersha Hospitality and Ellington Residential

0.21

Correlation Coefficient

Hersha Hospitality  Ellington Residential

Modest diversification

The 3 months correlation between Hersha and Ellington is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Hersha Hospitality Trust and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and Hersha Hospitality 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 Hersha Hospitality Trust are associated (or correlated) with Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of Hersha Hospitality i.e., Hersha Hospitality and Ellington Residential go up and down completely randomly.

Pair Corralation between Hersha Hospitality and Ellington Residential

If you would invest  668.00  in Ellington Residential Mortgage on January 26, 2024 and sell it today you would earn a total of  5.00  from holding Ellington Residential Mortgage or generate 0.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

Hersha Hospitality Trust  vs.  Ellington Residential Mortgage

Hersha Hospitality Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ellington Residential

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Residential Mortgage are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Ellington Residential displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hersha Hospitality and Ellington Residential

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

The idea behind Hersha Hospitality Trust and Ellington Residential Mortgage 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.