Correlation Between GigaMedia and Meliá Hotels
Can any of the company-specific risk be diversified away by investing in both GigaMedia and Meliá 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 GigaMedia and Meliá Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GigaMedia and Meli Hotels International, you can compare the effects of market volatilities on GigaMedia and Meliá 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 GigaMedia with a short position of Meliá Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of GigaMedia and Meliá Hotels.
Diversification Opportunities for GigaMedia and Meliá Hotels
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GigaMedia and Meliá is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding GigaMedia and Meli Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meli Hotels International and GigaMedia 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 GigaMedia are associated (or correlated) with Meliá Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meli Hotels International has no effect on the direction of GigaMedia i.e., GigaMedia and Meliá Hotels go up and down completely randomly.
Pair Corralation between GigaMedia and Meliá Hotels
Assuming the 90 days trading horizon GigaMedia is expected to generate 1.46 times less return on investment than Meliá Hotels. But when comparing it to its historical volatility, GigaMedia is 1.16 times less risky than Meliá Hotels. It trades about 0.03 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 559.00 in Meli Hotels International on October 7, 2024 and sell it today you would earn a total of 183.00 from holding Meli Hotels International or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GigaMedia vs. Meli Hotels International
Performance |
| Timeline |
| GigaMedia |
| Meli Hotels International |
GigaMedia and Meliá Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GigaMedia and Meliá Hotels
The main advantage of trading using opposite GigaMedia and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GigaMedia position performs unexpectedly, Meliá 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 Meliá Hotels will offset losses from the drop in Meliá Hotels' long position.The idea behind GigaMedia and Meli Hotels International 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.| Meliá Hotels vs. Marriott International | Meliá Hotels vs. Hyatt Hotels | Meliá Hotels vs. InterContinental Hotels Group | Meliá Hotels vs. INTERCONT HOTELS |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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