Correlation Between Alfa Financial and Melia Hotels

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

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

Diversification Opportunities for Alfa Financial and Melia Hotels

0.15

Correlation Coefficient

Alfa Financial  Melia Hotels

Average diversification

The 3 months correlation between Alfa and Melia is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Melia Hotels go up and down completely randomly.

Pair Corralation between Alfa Financial and Melia Hotels

Assuming the 90 days trading horizon Alfa Financial Software is expected to generate 0.94 times more return on investment than Melia Hotels. However, Alfa Financial Software is 1.07 times less risky than Melia Hotels. It trades about 0.05 of its potential returns per unit of risk. Melia Hotels is currently generating about -0.1 per unit of risk. If you would invest  21,500  in Alfa Financial Software on December 23, 2024 and sell it today you would earn a total of  850.00  from holding Alfa Financial Software or generate 3.95% return on investment over 90 days.

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

Alfa Financial Software  vs.  Melia Hotels

Alfa Financial Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alfa Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Melia Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Melia Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Alfa Financial and Melia Hotels

The main advantage of trading using opposite Alfa Financial and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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' long position.

The idea behind Alfa Financial Software 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.