Correlation Between Service Properties and Ashford Hospitality

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

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

Diversification Opportunities for Service Properties and Ashford Hospitality

-0.65

Correlation Coefficient

Service Properties  Ashford Hospitality

Excellent diversification

The 3 months correlation between Service and Ashford is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Service Properties Trust and Ashford Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashford Hospitality Trust and Service 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 Service Properties Trust are associated (or correlated) with Ashford Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashford Hospitality Trust has no effect on the direction of Service Properties i.e., Service Properties and Ashford Hospitality go up and down completely randomly.

Pair Corralation between Service Properties and Ashford Hospitality

Considering the 90-day investment horizon Service Properties Trust is expected to under-perform the Ashford Hospitality. But the stock apears to be less risky and, when comparing its historical volatility, Service Properties Trust is 1.26 times less risky than Ashford Hospitality. The stock trades about -0.17 of its potential returns per unit of risk. The Ashford Hospitality Trust is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,183  in Ashford Hospitality Trust on February 22, 2024 and sell it today you would earn a total of  110.00  from holding Ashford Hospitality Trust or generate 9.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Service Properties Trust  vs.  Ashford Hospitality Trust

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 weak 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.

Ashford Hospitality Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ashford Hospitality Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Ashford Hospitality may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Service Properties and Ashford Hospitality

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

The idea behind Service Properties Trust and Ashford Hospitality 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.