Correlation Between Melia Hotels and Vodafone Group

Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Vodafone 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 Vodafone 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 Vodafone Group PLC, you can compare the effects of market volatilities on Melia Hotels and Vodafone 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 Vodafone Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Vodafone Group.

Diversification Opportunities for Melia Hotels and Vodafone Group

-0.71

Correlation Coefficient

Melia Hotels  Vodafone Group

Pay attention - limited upside

The 3 months correlation between Melia and Vodafone is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Melia Hotels i.e., Melia Hotels and Vodafone Group go up and down completely randomly.

Pair Corralation between Melia Hotels and Vodafone Group

Assuming the 90 days trading horizon Melia Hotels is expected to under-perform the Vodafone Group. But the stock apears to be less risky and, when comparing its historical volatility, Melia Hotels is 1.1 times less risky than Vodafone Group. The stock trades about -0.5 of its potential returns per unit of risk. The Vodafone Group PLC is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,650  in Vodafone Group PLC on October 21, 2024 and sell it today you would earn a total of  308.00  from holding Vodafone Group PLC or generate 4.63% return on investment over 90 days.

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

Melia Hotels  vs.  Vodafone Group PLC

Melia Hotels

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 1 (%) 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.

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Vodafone Group is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Melia Hotels and Vodafone Group

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

The idea behind Melia Hotels and Vodafone 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.