Correlation Between Melia Hotels and Direct Line
Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Direct Line 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 Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Melia Hotels and Direct Line Insurance, you can compare the effects of market volatilities on Melia Hotels and Direct Line 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 Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Direct Line.
Diversification Opportunities for Melia Hotels and Direct Line
-0.83 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Melia and Direct is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Melia Hotels i.e., Melia Hotels and Direct Line go up and down completely randomly.
Pair Corralation between Melia Hotels and Direct Line
Assuming the 90 days trading horizon Melia Hotels is expected to generate 0.83 times more return on investment than Direct Line. However, Melia Hotels is 1.2 times less risky than Direct Line. It trades about 0.04 of its potential returns per unit of risk. Direct Line Insurance is currently generating about -0.26 per unit of risk. If you would invest 659.00 in Melia Hotels on August 30, 2024 and sell it today you would earn a total of 12.00 from holding Melia Hotels or generate 1.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Melia Hotels vs. Direct Line Insurance
Performance |
| Timeline |
| Melia Hotels |
| Direct Line Insurance |
Melia Hotels and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Melia Hotels and Direct Line
The main advantage of trading using opposite Melia Hotels and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.| Melia Hotels vs. Tungsten West PLC | Melia Hotels vs. Argo Group Limited | Melia Hotels vs. Hardide PLC | Melia Hotels vs. Versarien PLC |
| Direct Line vs. Toyota Motor Corp | Direct Line vs. SoftBank Group Corp | Direct Line vs. OTP Bank Nyrt | Direct Line vs. Las Vegas Sands |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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