Correlation Between Peak Resources and MELIA HOTELS

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

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

Diversification Opportunities for Peak Resources and MELIA HOTELS

0.36

Correlation Coefficient

Peak Resources  MELIA HOTELS

Weak diversification

The 3 months correlation between Peak and MELIA is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Peak Resources Limited and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and Peak Resources 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 Peak Resources Limited 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 Peak Resources i.e., Peak Resources and MELIA HOTELS go up and down completely randomly.

Pair Corralation between Peak Resources and MELIA HOTELS

Assuming the 90 days horizon Peak Resources Limited is expected to generate 4.13 times more return on investment than MELIA HOTELS. However, Peak Resources is 4.13 times more volatile than MELIA HOTELS. It trades about 0.01 of its potential returns per unit of risk. MELIA HOTELS is currently generating about -0.06 per unit of risk. If you would invest  6.30  in Peak Resources Limited on December 28, 2024 and sell it today you would lose (0.80) from holding Peak Resources Limited or give up 12.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Peak Resources Limited  vs.  MELIA HOTELS

Peak Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Peak Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Peak Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MELIA HOTELS

Risk-Adjusted Performance

Very Weak

Over the last 90 days MELIA HOTELS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Peak Resources and MELIA HOTELS

The main advantage of trading using opposite Peak Resources and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peak Resources 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 Peak Resources Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.