Correlation Between Alphabet and Choice Hotels

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

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

Diversification Opportunities for Alphabet and Choice Hotels

-0.06

Correlation Coefficient

Alphabet  Choice Hotels

Good diversification

The 3 months correlation between Alphabet and Choice is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Choice Hotels go up and down completely randomly.

Pair Corralation between Alphabet and Choice Hotels

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.1 times more return on investment than Choice Hotels. However, Alphabet is 1.1 times more volatile than Choice Hotels International. It trades about 0.21 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.04 per unit of risk. If you would invest  13,875  in Alphabet Inc Class C on February 26, 2024 and sell it today you would earn a total of  3,758  from holding Alphabet Inc Class C or generate 27.08% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Choice Hotels International

Alphabet Class C

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Choice Hotels Intern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Alphabet and Choice Hotels

The main advantage of trading using opposite Alphabet and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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.

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.