Correlation Between Applied Materials and Melia Hotels
Can any of the company-specific risk be diversified away by investing in both Applied Materials and Melia 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 Applied Materials and Melia Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and Melia Hotels, you can compare the effects of market volatilities on Applied Materials and Melia 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 Applied Materials with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Melia Hotels.
Diversification Opportunities for Applied Materials and Melia Hotels
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Applied and Melia is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Applied Materials 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 Applied Materials are associated (or correlated) with Melia Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melia Hotels has no effect on the direction of Applied Materials i.e., Applied Materials and Melia Hotels go up and down completely randomly.
Pair Corralation between Applied Materials and Melia Hotels
Assuming the 90 days trading horizon Applied Materials is expected to generate 1.8 times more return on investment than Melia Hotels. However, Applied Materials is 1.8 times more volatile than Melia Hotels. It trades about 0.09 of its potential returns per unit of risk. Melia Hotels is currently generating about 0.06 per unit of risk. If you would invest 17,434 in Applied Materials on October 26, 2024 and sell it today you would earn a total of 1,406 from holding Applied Materials or generate 8.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. Melia Hotels
Performance |
| Timeline |
| Applied Materials |
| Melia Hotels |
Applied Materials and Melia Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and Melia Hotels
The main advantage of trading using opposite Applied Materials and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials position performs unexpectedly, Melia 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 Melia Hotels will offset losses from the drop in Melia Hotels' long position.| Applied Materials vs. Berkshire Hathaway | Applied Materials vs. Samsung Electronics Co | Applied Materials vs. Samsung Electronics Co | Applied Materials vs. Chocoladefabriken Lindt Spruengli |
| Melia Hotels vs. Young Cos Brewery | Melia Hotels vs. Infrastrutture Wireless Italiane | Melia Hotels vs. Micron Technology | Melia Hotels vs. Polar Capital Technology |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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