Correlation Between Warner Music and Meli Hotels
Can any of the company-specific risk be diversified away by investing in both Warner Music and Meli 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 Warner Music and Meli Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Warner Music Group and Meli Hotels International, you can compare the effects of market volatilities on Warner Music and Meli 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 Warner Music with a short position of Meli Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Meli Hotels.
Diversification Opportunities for Warner Music and Meli Hotels
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Warner and Meli is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group 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 Warner Music 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 Warner Music Group are associated (or correlated) with Meli 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 Warner Music i.e., Warner Music and Meli Hotels go up and down completely randomly.
Pair Corralation between Warner Music and Meli Hotels
Assuming the 90 days horizon Warner Music Group is expected to generate 0.85 times more return on investment than Meli Hotels. However, Warner Music Group is 1.18 times less risky than Meli Hotels. It trades about 0.29 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.1 per unit of risk. If you would invest 2,557 in Warner Music Group on August 25, 2024 and sell it today you would earn a total of 624.00 from holding Warner Music Group or generate 24.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Meli Hotels International
Performance |
| Timeline |
| Warner Music Group |
| Meli Hotels International |
Warner Music and Meli Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Meli Hotels
The main advantage of trading using opposite Warner Music and Meli Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Meli 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 Meli Hotels will offset losses from the drop in Meli Hotels' long position.| Warner Music vs. The Walt Disney | Warner Music vs. Superior Plus Corp | Warner Music vs. NMI Holdings | Warner Music vs. Origin Agritech |
| Meli Hotels vs. Zoom Video Communications | Meli Hotels vs. Warner Music Group | Meli Hotels vs. National Beverage Corp | Meli Hotels vs. Evolution Mining Limited |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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