Correlation Between GMS and Meliá Hotels
Can any of the company-specific risk be diversified away by investing in both GMS 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 GMS and Meliá Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and Meli Hotels International, you can compare the effects of market volatilities on GMS 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 GMS with a short position of Meliá Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Meliá Hotels.
Diversification Opportunities for GMS and Meliá Hotels
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GMS and Meliá is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc 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 GMS 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 GMS Inc 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 GMS i.e., GMS and Meliá Hotels go up and down completely randomly.
Pair Corralation between GMS and Meliá Hotels
Considering the 90-day investment horizon GMS Inc is expected to generate 0.82 times more return on investment than Meliá Hotels. However, GMS Inc is 1.22 times less risky than Meliá Hotels. It trades about 0.08 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.04 per unit of risk. If you would invest 5,370 in GMS Inc on September 4, 2024 and sell it today you would earn a total of 4,898 from holding GMS Inc or generate 91.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.98% |
| Values | Daily Returns |
GMS Inc vs. Meli Hotels International
Performance |
| Timeline |
| GMS Inc |
| Meli Hotels International |
GMS and Meliá Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GMS and Meliá Hotels
The main advantage of trading using opposite GMS and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS 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.| GMS vs. Quanex Building Products | GMS vs. Apogee Enterprises | GMS vs. Azek Company | GMS vs. Beacon Roofing Supply |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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