Correlation Between Associated British and Meliá Hotels

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

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

Diversification Opportunities for Associated British and Meliá Hotels

-0.48

Correlation Coefficient

Associated British  Meliá Hotels

Very good diversification

The 3 months correlation between Associated and Meliá is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods 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 Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Meliá Hotels go up and down completely randomly.

Pair Corralation between Associated British and Meliá Hotels

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Meliá Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.18 times less risky than Meliá Hotels. The stock trades about -0.09 of its potential returns per unit of risk. The Meli Hotels International is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  696.00  in Meli Hotels International on October 22, 2024 and sell it today you would lose (17.00) from holding Meli Hotels International or give up 2.44% of portfolio value over 90 days.

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

Associated British Foods  vs.  Meli Hotels International

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Meli Hotels International

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Meliá Hotels is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Associated British and Meliá Hotels

The main advantage of trading using opposite Associated British and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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 Associated British Foods 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..