Correlation Between First and Melia Hotels
Can any of the company-specific risk be diversified away by investing in both First 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 First and Melia Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Class Metals and Melia Hotels, you can compare the effects of market volatilities on First 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 First with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and Melia Hotels.
Diversification Opportunities for First and Melia Hotels
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and Melia is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and First 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 First Class Metals 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 First i.e., First and Melia Hotels go up and down completely randomly.
Pair Corralation between First and Melia Hotels
Assuming the 90 days trading horizon First Class Metals is expected to under-perform the Melia Hotels. In addition to that, First is 2.83 times more volatile than Melia Hotels. It trades about -0.06 of its total potential returns per unit of risk. Melia Hotels is currently generating about -0.1 per unit of volatility. If you would invest 741.00 in Melia Hotels on November 3, 2024 and sell it today you would lose (22.00) from holding Melia Hotels or give up 2.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Class Metals vs. Melia Hotels
Performance |
| Timeline |
| First Class Metals |
| Melia Hotels |
First and Melia Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First and Melia Hotels
The main advantage of trading using opposite First and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First 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.The idea behind First Class Metals and Melia Hotels 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.| Melia Hotels vs. Spirent Communications plc | Melia Hotels vs. Global Net Lease | Melia Hotels vs. Gamma Communications PLC | Melia Hotels vs. Universal Music Group |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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