Correlation Between Melia Hotels and NatWest Group
Can any of the company-specific risk be diversified away by investing in both Melia Hotels and NatWest Group 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 NatWest Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Melia Hotels and NatWest Group PLC, you can compare the effects of market volatilities on Melia Hotels and NatWest Group 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 NatWest Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and NatWest Group.
Diversification Opportunities for Melia Hotels and NatWest Group
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Melia and NatWest is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and NatWest Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NatWest Group PLC 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 NatWest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NatWest Group PLC has no effect on the direction of Melia Hotels i.e., Melia Hotels and NatWest Group go up and down completely randomly.
Pair Corralation between Melia Hotels and NatWest Group
Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.57 times less return on investment than NatWest Group. But when comparing it to its historical volatility, Melia Hotels is 1.13 times less risky than NatWest Group. It trades about 0.17 of its potential returns per unit of risk. NatWest Group PLC is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 33,210 in NatWest Group PLC on September 12, 2024 and sell it today you would earn a total of 7,720 from holding NatWest Group PLC or generate 23.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Melia Hotels vs. NatWest Group PLC
Performance |
| Timeline |
| Melia Hotels |
| NatWest Group PLC |
Melia Hotels and NatWest Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Melia Hotels and NatWest Group
The main advantage of trading using opposite Melia Hotels and NatWest Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, NatWest Group 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 NatWest Group will offset losses from the drop in NatWest Group's long position.| Melia Hotels vs. Silvercorp Metals | Melia Hotels vs. Vienna Insurance Group | Melia Hotels vs. Panther Metals PLC | Melia Hotels vs. Golden Metal Resources |
| NatWest Group vs. Melia Hotels | NatWest Group vs. InterContinental Hotels Group | NatWest Group vs. AcadeMedia AB | NatWest Group vs. Centaur Media |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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