Correlation Between LENSAR and Meliá Hotels

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

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

Diversification Opportunities for LENSAR and Meliá Hotels

0.73

Correlation Coefficient

LENSAR  Meliá Hotels

Poor diversification

The 3 months correlation between LENSAR and Meliá is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding LENSAR Inc 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 LENSAR 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 LENSAR Inc 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 LENSAR i.e., LENSAR and Meliá Hotels go up and down completely randomly.

Pair Corralation between LENSAR and Meliá Hotels

Given the investment horizon of 90 days LENSAR Inc is expected to generate 1.04 times more return on investment than Meliá Hotels. However, LENSAR is 1.04 times more volatile than Meli Hotels International. It trades about -0.08 of its potential returns per unit of risk. Meli Hotels International is currently generating about -0.24 per unit of risk. If you would invest  865.00  in LENSAR Inc on October 24, 2024 and sell it today you would lose (48.00) from holding LENSAR Inc or give up 5.55% of portfolio value over 90 days.

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

LENSAR Inc  vs.  Meli Hotels International

LENSAR Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LENSAR Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, LENSAR reported solid returns over the last few months and may actually be approaching a breakup point.

Meli Hotels International

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, Meliá Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LENSAR and Meliá Hotels

The main advantage of trading using opposite LENSAR and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LENSAR 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 LENSAR Inc 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.