Correlation Between Melia Hotels and Shell Plc

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

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

Diversification Opportunities for Melia Hotels and Shell Plc

-0.58

Correlation Coefficient

Melia Hotels  Shell Plc

Excellent diversification

The 3 months correlation between Melia and Shell is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Shell plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell 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 Shell Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell plc has no effect on the direction of Melia Hotels i.e., Melia Hotels and Shell Plc go up and down completely randomly.

Pair Corralation between Melia Hotels and Shell Plc

Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.27 times more return on investment than Shell Plc. However, Melia Hotels is 1.27 times more volatile than Shell plc. It trades about 0.03 of its potential returns per unit of risk. Shell plc is currently generating about 0.02 per unit of risk. If you would invest  600.00  in Melia Hotels on October 11, 2024 and sell it today you would earn a total of  128.00  from holding Melia Hotels or generate 21.33% return on investment over 90 days.

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

Melia Hotels  vs.  Shell plc

Melia Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Melia Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shell plc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Shell plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Shell Plc is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Melia Hotels and Shell Plc

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

The idea behind Melia Hotels and Shell 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.