Correlation Between Melia Hotels and London Security

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

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

Diversification Opportunities for Melia Hotels and London Security

-0.21

Correlation Coefficient

Melia Hotels  London Security

Very good diversification

The 3 months correlation between Melia and London is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security 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 London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Melia Hotels i.e., Melia Hotels and London Security go up and down completely randomly.

Pair Corralation between Melia Hotels and London Security

Assuming the 90 days trading horizon Melia Hotels is expected to under-perform the London Security. But the stock apears to be less risky and, when comparing its historical volatility, Melia Hotels is 1.02 times less risky than London Security. The stock trades about -0.1 of its potential returns per unit of risk. The London Security Plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  340,000  in London Security Plc on December 24, 2024 and sell it today you would earn a total of  20,000  from holding London Security Plc or generate 5.88% return on investment over 90 days.

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

Melia Hotels  vs.  London Security Plc

Melia Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Melia Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

London Security Plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in London Security Plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, London Security may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Melia Hotels and London Security

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

The idea behind Melia Hotels and London Security 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.