Correlation Between Host Hotels and Sunstone Hotel

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

By analyzing existing cross correlation between Host Hotels Resorts and Sunstone Hotel Investors, you can compare the effects of market volatilities on Host Hotels and Sunstone Hotel 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 Host Hotels with a short position of Sunstone Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Host Hotels and Sunstone Hotel.

Diversification Opportunities for Host Hotels and Sunstone Hotel

0.89

Correlation Coefficient

Host Hotels  Sunstone Hotel

Very poor diversification

The 3 months correlation between Host and Sunstone is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors and Host Hotels 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 Host Hotels Resorts are associated (or correlated) with Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of Host Hotels i.e., Host Hotels and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Host Hotels and Sunstone Hotel

Assuming the 90 days horizon Host Hotels is expected to generate 6.57 times less return on investment than Sunstone Hotel. But when comparing it to its historical volatility, Host Hotels Resorts is 1.57 times less risky than Sunstone Hotel. It trades about 0.09 of its potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  940.00  in Sunstone Hotel Investors on September 21, 2024 and sell it today you would earn a total of  220.00  from holding Sunstone Hotel Investors or generate 23.4% return on investment over 90 days.

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

Host Hotels Resorts  vs.  Sunstone Hotel Investors

Host Hotels Resorts

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Host Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sunstone Hotel Investors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Host Hotels and Sunstone Hotel

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

The idea behind Host Hotels Resorts and Sunstone Hotel Investors 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..