Correlation Between Melia Hotels and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Electronic Arts 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 Melia Hotels and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Melia Hotels and Electronic Arts, you can compare the effects of market volatilities on Melia Hotels and Electronic Arts 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 Melia Hotels with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Electronic Arts.
Diversification Opportunities for Melia Hotels and Electronic Arts
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Melia and Electronic is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Melia 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 Melia Hotels are associated (or correlated) with Electronic Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Arts has no effect on the direction of Melia Hotels i.e., Melia Hotels and Electronic Arts go up and down completely randomly.
Pair Corralation between Melia Hotels and Electronic Arts
Assuming the 90 days trading horizon Melia Hotels is expected to under-perform the Electronic Arts. In addition to that, Melia Hotels is 1.23 times more volatile than Electronic Arts. It trades about -0.05 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.42 per unit of volatility. If you would invest 15,216 in Electronic Arts on September 2, 2024 and sell it today you would earn a total of 1,151 from holding Electronic Arts or generate 7.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Melia Hotels vs. Electronic Arts
Performance |
| Timeline |
| Melia Hotels |
| Electronic Arts |
Melia Hotels and Electronic Arts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Melia Hotels and Electronic Arts
The main advantage of trading using opposite Melia Hotels and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Electronic Arts 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 Electronic Arts will offset losses from the drop in Electronic Arts' long position.| Melia Hotels vs. Monster Beverage Corp | Melia Hotels vs. PureTech Health plc | Melia Hotels vs. Odfjell Drilling | Melia Hotels vs. Synthomer plc |
| Electronic Arts vs. Uniper SE | Electronic Arts vs. Mulberry Group PLC | Electronic Arts vs. London Security Plc | Electronic Arts vs. Triad Group PLC |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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