Correlation Between Toyota and Melia Hotels
Can any of the company-specific risk be diversified away by investing in both Toyota 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 Toyota and Melia Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor Corp and Melia Hotels, you can compare the effects of market volatilities on Toyota 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 Toyota with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Melia Hotels.
Diversification Opportunities for Toyota and Melia Hotels
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Toyota and Melia is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Toyota 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 Toyota Motor Corp 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 Toyota i.e., Toyota and Melia Hotels go up and down completely randomly.
Pair Corralation between Toyota and Melia Hotels
Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the Melia Hotels. In addition to that, Toyota is 1.28 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 -0.01 per unit of volatility. If you would invest 680.00 in Melia Hotels on September 1, 2024 and sell it today you would lose (3.00) from holding Melia Hotels or give up 0.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Toyota Motor Corp vs. Melia Hotels
Performance |
| Timeline |
| Toyota Motor Corp |
| Melia Hotels |
Toyota and Melia Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Melia Hotels
The main advantage of trading using opposite Toyota and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota 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.| Toyota vs. JB Hunt Transport | Toyota vs. Greenroc Mining PLC | Toyota vs. Premier Foods PLC | Toyota vs. Roebuck Food Group |
| 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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