Correlation Between Melia Hotels and Freeport McMoRan

Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Freeport McMoRan 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 Melia Hotels and Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Melia Hotels and Freeport McMoRan, you can compare the effects of market volatilities on Melia Hotels and Freeport McMoRan 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 Melia Hotels with a short position of Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Freeport McMoRan.

Diversification Opportunities for Melia Hotels and Freeport McMoRan

-0.6

Correlation Coefficient

Melia Hotels  Freeport McMoRan

Excellent diversification

The 3 months correlation between Melia and Freeport is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and Melia Hotels 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 Melia Hotels are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Melia Hotels i.e., Melia Hotels and Freeport McMoRan go up and down completely randomly.

Pair Corralation between Melia Hotels and Freeport McMoRan

Assuming the 90 days trading horizon Melia Hotels is expected to under-perform the Freeport McMoRan. But the stock apears to be less risky and, when comparing its historical volatility, Melia Hotels is 1.05 times less risky than Freeport McMoRan. The stock trades about -0.35 of its potential returns per unit of risk. The Freeport McMoRan is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,900  in Freeport McMoRan on October 23, 2024 and sell it today you would earn a total of  164.00  from holding Freeport McMoRan or generate 4.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Melia Hotels  vs.  Freeport McMoRan

Melia Hotels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Melia Hotels is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Melia Hotels and Freeport McMoRan

The main advantage of trading using opposite Melia Hotels and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.

The idea behind Melia Hotels and Freeport McMoRan pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.