Correlation Between Nathans Famous and Choice Hotels

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

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

Diversification Opportunities for Nathans Famous and Choice Hotels

0.09

Correlation Coefficient

Nathans Famous  Choice Hotels

Significant diversification

The 3 months correlation between Nathans and Choice is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Nathans Famous and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern and Nathans Famous 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 Nathans Famous are associated (or correlated) with Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Nathans Famous i.e., Nathans Famous and Choice Hotels go up and down completely randomly.

Pair Corralation between Nathans Famous and Choice Hotels

Given the investment horizon of 90 days Nathans Famous is expected to under-perform the Choice Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Nathans Famous is 2.05 times less risky than Choice Hotels. The stock trades about -0.53 of its potential returns per unit of risk. The Choice Hotels International is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  12,371  in Choice Hotels International on January 30, 2024 and sell it today you would lose (466.00) from holding Choice Hotels International or give up 3.77% of portfolio value over 90 days.

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

Nathans Famous  vs.  Choice Hotels International

Nathans Famous

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nathans Famous has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating 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.

Choice Hotels Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Choice Hotels is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nathans Famous and Choice Hotels

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

The idea behind Nathans Famous and Choice Hotels International 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.