Correlation Between Wyndham Hotels and Five Below

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Can any of the company-specific risk be diversified away by investing in both Wyndham Hotels and Five Below 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 Wyndham Hotels and Five Below into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wyndham Hotels Resorts and Five Below, you can compare the effects of market volatilities on Wyndham Hotels and Five Below 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 Wyndham Hotels with a short position of Five Below. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wyndham Hotels and Five Below.

Diversification Opportunities for Wyndham Hotels and Five Below

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wyndham and Five Below is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below and Wyndham 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 Wyndham Hotels Resorts are associated (or correlated) with Five Below. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Below has no effect on the direction of Wyndham Hotels i.e., Wyndham Hotels and Five Below go up and down completely randomly.

Pair Corralation between Wyndham Hotels and Five Below

Allowing for the 90-day total investment horizon Wyndham Hotels Resorts is expected to generate 0.71 times more return on investment than Five Below. However, Wyndham Hotels Resorts is 1.4 times less risky than Five Below. It trades about 0.03 of its potential returns per unit of risk. Five Below is currently generating about 0.01 per unit of risk. If you would invest  5,613  in Wyndham Hotels Resorts on August 30, 2022 and sell it today you would earn a total of  1,585  from holding Wyndham Hotels Resorts or generate 28.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

Wyndham Hotels Resorts  vs.  Five Below

 Performance (%) 
       Timeline  
Wyndham Hotels Resorts 
Wyndham Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Wyndham Hotels may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Wyndham Price Channel

Five Below 
Five Below Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Five Below are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Five Below exhibited solid returns over the last few months and may actually be approaching a breakup point.

Five Below Price Channel

Wyndham Hotels and Five Below Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wyndham Hotels and Five Below

The main advantage of trading using opposite Wyndham Hotels and Five Below positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wyndham Hotels position performs unexpectedly, Five Below 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 Five Below will offset losses from the drop in Five Below's long position.
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The idea behind Wyndham Hotels Resorts and Five Below 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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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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