Correlation Between AIR CHINA and MELIA HOTELS

Can any of the company-specific risk be diversified away by investing in both AIR CHINA and MELIA 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 AIR CHINA and MELIA HOTELS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AIR CHINA LTD and MELIA HOTELS, you can compare the effects of market volatilities on AIR CHINA and MELIA 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 AIR CHINA with a short position of MELIA HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIR CHINA and MELIA HOTELS.

Diversification Opportunities for AIR CHINA and MELIA HOTELS

0.71

Correlation Coefficient

AIR CHINA  MELIA HOTELS

Poor diversification

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

Pair Corralation between AIR CHINA and MELIA HOTELS

Assuming the 90 days trading horizon AIR CHINA LTD is expected to under-perform the MELIA HOTELS. In addition to that, AIR CHINA is 1.41 times more volatile than MELIA HOTELS. It trades about -0.01 of its total potential returns per unit of risk. MELIA HOTELS is currently generating about 0.03 per unit of volatility. If you would invest  609.00  in MELIA HOTELS on October 5, 2024 and sell it today you would earn a total of  117.00  from holding MELIA HOTELS or generate 19.21% return on investment over 90 days.

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

AIR CHINA LTD  vs.  MELIA HOTELS

AIR CHINA LTD

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days AIR CHINA LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

MELIA HOTELS

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days MELIA HOTELS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, MELIA HOTELS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AIR CHINA and MELIA HOTELS

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

The idea behind AIR CHINA LTD and MELIA HOTELS 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.