Correlation Between NatWest Group and Melia Hotels
Can any of the company-specific risk be diversified away by investing in both NatWest Group 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 NatWest Group and Melia Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NatWest Group PLC and Melia Hotels, you can compare the effects of market volatilities on NatWest Group 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 NatWest Group with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of NatWest Group and Melia Hotels.
Diversification Opportunities for NatWest Group and Melia Hotels
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between NatWest and Melia is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NatWest Group PLC and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and NatWest Group 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 NatWest Group PLC 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 NatWest Group i.e., NatWest Group and Melia Hotels go up and down completely randomly.
Pair Corralation between NatWest Group and Melia Hotels
Assuming the 90 days trading horizon NatWest Group PLC is expected to generate 0.69 times more return on investment than Melia Hotels. However, NatWest Group PLC is 1.44 times less risky than Melia Hotels. It trades about 0.15 of its potential returns per unit of risk. Melia Hotels is currently generating about 0.07 per unit of risk. If you would invest 39,500 in NatWest Group PLC on September 12, 2024 and sell it today you would earn a total of 1,430 from holding NatWest Group PLC or generate 3.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NatWest Group PLC vs. Melia Hotels
Performance |
| Timeline |
| NatWest Group PLC |
| Melia Hotels |
NatWest Group and Melia Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NatWest Group and Melia Hotels
The main advantage of trading using opposite NatWest Group and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NatWest Group 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.| NatWest Group vs. Melia Hotels | NatWest Group vs. InterContinental Hotels Group | NatWest Group vs. AcadeMedia AB | NatWest Group vs. Centaur Media |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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