Correlation Between NMI Holdings and Meli Hotels

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

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

Diversification Opportunities for NMI Holdings and Meli Hotels

-0.48

Correlation Coefficient

NMI Holdings  Meli Hotels

Very good diversification

The 3 months correlation between NMI and Meli is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Meli Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meli Hotels International and NMI Holdings 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 NMI Holdings are associated (or correlated) with Meli Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meli Hotels International has no effect on the direction of NMI Holdings i.e., NMI Holdings and Meli Hotels go up and down completely randomly.

Pair Corralation between NMI Holdings and Meli Hotels

Assuming the 90 days horizon NMI Holdings is expected to generate 3.9 times less return on investment than Meli Hotels. In addition to that, NMI Holdings is 1.05 times more volatile than Meli Hotels International. It trades about 0.02 of its total potential returns per unit of risk. Meli Hotels International is currently generating about 0.1 per unit of volatility. If you would invest  696.00  in Meli Hotels International on October 7, 2024 and sell it today you would earn a total of  46.00  from holding Meli Hotels International or generate 6.61% return on investment over 90 days.

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

NMI Holdings  vs.  Meli Hotels International

NMI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NMI Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Meli Hotels International

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Meli Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Meli Hotels

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

The idea behind NMI Holdings and Meli Hotels International 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.