Correlation Between RCS MediaGroup and MELIA HOTELS

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

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

Diversification Opportunities for RCS MediaGroup and MELIA HOTELS

0.64

Correlation Coefficient

RCS MediaGroup  MELIA HOTELS

Poor diversification

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

Pair Corralation between RCS MediaGroup and MELIA HOTELS

Assuming the 90 days trading horizon RCS MediaGroup SpA is expected to generate 0.93 times more return on investment than MELIA HOTELS. However, RCS MediaGroup SpA is 1.07 times less risky than MELIA HOTELS. It trades about 0.05 of its potential returns per unit of risk. MELIA HOTELS is currently generating about 0.02 per unit of risk. If you would invest  65.00  in RCS MediaGroup SpA on October 22, 2024 and sell it today you would earn a total of  21.00  from holding RCS MediaGroup SpA or generate 32.31% return on investment over 90 days.

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

RCS MediaGroup SpA  vs.  MELIA HOTELS

RCS MediaGroup SpA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RCS MediaGroup SpA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, RCS MediaGroup reported solid returns over the last few months and may actually be approaching a breakup point.

MELIA HOTELS

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MELIA HOTELS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, MELIA HOTELS is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RCS MediaGroup and MELIA HOTELS

The main advantage of trading using opposite RCS MediaGroup and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RCS MediaGroup 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 RCS MediaGroup SpA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.