Correlation Between Fevertree Drinks and Meliá Hotels

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

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

Diversification Opportunities for Fevertree Drinks and Meliá Hotels

-0.4

Correlation Coefficient

Fevertree Drinks  Meliá Hotels

Very good diversification

The 3 months correlation between Fevertree and Meliá is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks PLC 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 Fevertree Drinks 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 Fevertree Drinks PLC 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 Fevertree Drinks i.e., Fevertree Drinks and Meliá Hotels go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Meliá Hotels

Assuming the 90 days trading horizon Fevertree Drinks PLC is expected to under-perform the Meliá Hotels. In addition to that, Fevertree Drinks is 1.31 times more volatile than Meli Hotels International. It trades about -0.11 of its total potential returns per unit of risk. Meli Hotels International is currently generating about 0.02 per unit of volatility. If you would invest  675.00  in Meli Hotels International on October 24, 2024 and sell it today you would earn a total of  11.00  from holding Meli Hotels International or generate 1.63% return on investment over 90 days.

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

Fevertree Drinks PLC  vs.  Meli Hotels International

Fevertree Drinks PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 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

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Meliá Hotels is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fevertree Drinks and Meliá Hotels

The main advantage of trading using opposite Fevertree Drinks and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks 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 Fevertree Drinks PLC 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.