Correlation Between Melia Hotels and Dotdigital Group

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

By analyzing existing cross correlation between Melia Hotels and Dotdigital Group Plc, you can compare the effects of market volatilities on Melia Hotels and Dotdigital Group 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 Dotdigital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Dotdigital Group.

Diversification Opportunities for Melia Hotels and Dotdigital Group

0.55

Correlation Coefficient

Melia Hotels  Dotdigital Group

Very weak diversification

The 3 months correlation between Melia and Dotdigital is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Dotdigital Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dotdigital Group Plc 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 Dotdigital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dotdigital Group Plc has no effect on the direction of Melia Hotels i.e., Melia Hotels and Dotdigital Group go up and down completely randomly.

Pair Corralation between Melia Hotels and Dotdigital Group

Assuming the 90 days trading horizon Melia Hotels is expected to generate 0.44 times more return on investment than Dotdigital Group. However, Melia Hotels is 2.25 times less risky than Dotdigital Group. It trades about 0.2 of its potential returns per unit of risk. Dotdigital Group Plc is currently generating about 0.06 per unit of risk. If you would invest  647.00  in Melia Hotels on September 14, 2024 and sell it today you would earn a total of  106.00  from holding Melia Hotels or generate 16.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Melia Hotels  vs.  Dotdigital Group Plc

Melia Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Melia Hotels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dotdigital Group Plc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dotdigital Group Plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dotdigital Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Melia Hotels and Dotdigital Group

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

The idea behind Melia Hotels and Dotdigital Group Plc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.