Correlation Between WIMFARM SA and Meliá Hotels

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

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

Diversification Opportunities for WIMFARM SA and Meliá Hotels

0.04

Correlation Coefficient

WIMFARM SA  Meliá Hotels

Significant diversification

The 3 months correlation between WIMFARM and Meliá is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding WIMFARM SA EO 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 WIMFARM SA 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 WIMFARM SA EO are associated (or correlated) with Meliá 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 WIMFARM SA i.e., WIMFARM SA and Meliá Hotels go up and down completely randomly.

Pair Corralation between WIMFARM SA and Meliá Hotels

Assuming the 90 days horizon WIMFARM SA EO is expected to under-perform the Meliá Hotels. In addition to that, WIMFARM SA is 2.14 times more volatile than Meli Hotels International. It trades about -0.06 of its total potential returns per unit of risk. Meli Hotels International is currently generating about 0.02 per unit of volatility. If you would invest  597.00  in Meli Hotels International on October 23, 2024 and sell it today you would earn a total of  78.00  from holding Meli Hotels International or generate 13.07% return on investment over 90 days.

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

WIMFARM SA EO  vs.  Meli Hotels International

WIMFARM SA EO

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WIMFARM SA EO are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, WIMFARM SA reported solid returns over the last few months and may actually be approaching a breakup point.

Meli Hotels International

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with WIMFARM SA and Meliá Hotels

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

The idea behind WIMFARM SA EO 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.