Correlation Between Choice Hotels and MELIA HOTELS

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

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

Diversification Opportunities for Choice Hotels and MELIA HOTELS

0.64

Correlation Coefficient

Choice Hotels  MELIA HOTELS

Poor diversification

The 3 months correlation between Choice and MELIA is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and Choice Hotels 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 Choice Hotels International 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 Choice Hotels i.e., Choice Hotels and MELIA HOTELS go up and down completely randomly.

Pair Corralation between Choice Hotels and MELIA HOTELS

Assuming the 90 days horizon Choice Hotels is expected to generate 1.2 times less return on investment than MELIA HOTELS. In addition to that, Choice Hotels is 1.07 times more volatile than MELIA HOTELS. It trades about 0.12 of its total potential returns per unit of risk. MELIA HOTELS is currently generating about 0.15 per unit of volatility. If you would invest  634.00  in MELIA HOTELS on October 5, 2024 and sell it today you would earn a total of  92.00  from holding MELIA HOTELS or generate 14.51% return on investment over 90 days.

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

Choice Hotels International  vs.  MELIA HOTELS

Choice Hotels Intern

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Choice Hotels 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 Choice Hotels and MELIA HOTELS

The main advantage of trading using opposite Choice Hotels and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Choice Hotels 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 Choice Hotels International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.