Correlation Between Pacific Gas and Sotherly Hotels

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

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

Diversification Opportunities for Pacific Gas and Sotherly Hotels

0.29

Correlation Coefficient

Pacific Gas  Sotherly Hotels

Modest diversification

The 3 months correlation between Pacific and Sotherly is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Gas and and Sotherly Hotels Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels Pref and Pacific Gas 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 Pacific Gas and are associated (or correlated) with Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels Pref has no effect on the direction of Pacific Gas i.e., Pacific Gas and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Pacific Gas and Sotherly Hotels

Assuming the 90 days trading horizon Pacific Gas and is expected to under-perform the Sotherly Hotels. But the preferred stock apears to be less risky and, when comparing its historical volatility, Pacific Gas and is 1.4 times less risky than Sotherly Hotels. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Sotherly Hotels Pref is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,753  in Sotherly Hotels Pref on September 8, 2024 and sell it today you would lose (18.00) from holding Sotherly Hotels Pref or give up 1.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Pacific Gas and  vs.  Sotherly Hotels Pref

Pacific Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Gas and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Pacific Gas is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sotherly Hotels Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sotherly Hotels is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Pacific Gas and Sotherly Hotels

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

The idea behind Pacific Gas and and Sotherly Hotels Pref 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.