Correlation Between CDN IMPERIAL and Meliá Hotels

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

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

Diversification Opportunities for CDN IMPERIAL and Meliá Hotels

0.38

Correlation Coefficient

CDN IMPERIAL  Meliá Hotels

Weak diversification

The 3 months correlation between CDN and Meliá is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK 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 CDN IMPERIAL 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 CDN IMPERIAL BANK 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 CDN IMPERIAL i.e., CDN IMPERIAL and Meliá Hotels go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Meliá Hotels

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to under-perform the Meliá Hotels. But the stock apears to be less risky and, when comparing its historical volatility, CDN IMPERIAL BANK is 1.1 times less risky than Meliá Hotels. The stock trades about -0.15 of its potential returns per unit of risk. The Meli Hotels International is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  726.00  in Meli Hotels International on December 20, 2024 and sell it today you would lose (71.00) from holding Meli Hotels International or give up 9.78% of portfolio value over 90 days.

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

CDN IMPERIAL BANK  vs.  Meli Hotels International

CDN IMPERIAL BANK

Risk-Adjusted Performance

Very Weak

Over the last 90 days CDN IMPERIAL BANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 fragile 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 CDN IMPERIAL and Meliá Hotels

The main advantage of trading using opposite CDN IMPERIAL and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CDN IMPERIAL 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 CDN IMPERIAL BANK 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.