Correlation Between Next PLC and Melia Hotels
Can any of the company-specific risk be diversified away by investing in both Next PLC 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 Next PLC and Melia Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Next PLC and Melia Hotels, you can compare the effects of market volatilities on Next PLC 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 Next PLC with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Next PLC and Melia Hotels.
Diversification Opportunities for Next PLC and Melia Hotels
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Next and Melia is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Next PLC and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Next PLC 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 Next 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 Next PLC i.e., Next PLC and Melia Hotels go up and down completely randomly.
Pair Corralation between Next PLC and Melia Hotels
Assuming the 90 days trading horizon Next PLC is expected to generate 0.84 times more return on investment than Melia Hotels. However, Next PLC is 1.19 times less risky than Melia Hotels. It trades about 0.11 of its potential returns per unit of risk. Melia Hotels is currently generating about 0.06 per unit of risk. If you would invest 703,686 in Next PLC on September 1, 2024 and sell it today you would earn a total of 304,314 from holding Next PLC or generate 43.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.63% |
| Values | Daily Returns |
Next PLC vs. Melia Hotels
Performance |
| Timeline |
| Next PLC |
| Melia Hotels |
Next PLC and Melia Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Next PLC and Melia Hotels
The main advantage of trading using opposite Next PLC and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Next PLC 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.| Next PLC vs. Ondine Biomedical | Next PLC vs. Europa Metals | Next PLC vs. Revolution Beauty Group | Next PLC vs. Moonpig Group PLC |
| Melia Hotels vs. Uniper SE | Melia Hotels vs. Mulberry Group PLC | Melia Hotels vs. London Security Plc | Melia Hotels vs. Triad Group PLC |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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