Correlation Between BJs Restaurants and Meliá Hotels

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

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

Diversification Opportunities for BJs Restaurants and Meliá Hotels

-0.28

Correlation Coefficient

BJs Restaurants  Meliá Hotels

Very good diversification

The 3 months correlation between BJs and Meliá is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants i.e., BJs Restaurants and Meliá Hotels go up and down completely randomly.

Pair Corralation between BJs Restaurants and Meliá Hotels

Given the investment horizon of 90 days BJs Restaurants is expected to generate 1.27 times more return on investment than Meliá Hotels. However, BJs Restaurants is 1.27 times more volatile than Meli Hotels International. It trades about 0.01 of its potential returns per unit of risk. Meli Hotels International is currently generating about -0.06 per unit of risk. If you would invest  3,562  in BJs Restaurants on December 26, 2024 and sell it today you would lose (3.00) from holding BJs Restaurants or give up 0.08% of portfolio value over 90 days.

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

BJs Restaurants  vs.  Meli Hotels International

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Meli Hotels International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meli Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BJs Restaurants and Meliá Hotels

The main advantage of trading using opposite BJs Restaurants and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants 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 BJs Restaurants 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.