Correlation Between DOCDATA and Meliá Hotels

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

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

Diversification Opportunities for DOCDATA and Meliá Hotels

0.47

Correlation Coefficient

DOCDATA  Meliá Hotels

Very weak diversification

The 3 months correlation between DOCDATA and Meliá is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding DOCDATA 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 DOCDATA 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 DOCDATA 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 DOCDATA i.e., DOCDATA and Meliá Hotels go up and down completely randomly.

Pair Corralation between DOCDATA and Meliá Hotels

Assuming the 90 days trading horizon DOCDATA is expected to under-perform the Meliá Hotels. In addition to that, DOCDATA is 1.53 times more volatile than Meli Hotels International. It trades about -0.07 of its total potential returns per unit of risk. Meli Hotels International is currently generating about -0.07 per unit of volatility. If you would invest  729.00  in Meli Hotels International on December 29, 2024 and sell it today you would lose (57.00) from holding Meli Hotels International or give up 7.82% of portfolio value over 90 days.

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

DOCDATA  vs.  Meli Hotels International

DOCDATA

Risk-Adjusted Performance

Very Weak

Over the last 90 days DOCDATA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 DOCDATA and Meliá Hotels

The main advantage of trading using opposite DOCDATA and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOCDATA 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 DOCDATA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.