Correlation Between Meli Hotels and AutoZone

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

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

Diversification Opportunities for Meli Hotels and AutoZone

0.01

Correlation Coefficient

Meli Hotels  AutoZone

Significant diversification

The 3 months correlation between Meli and AutoZone is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone and Meli Hotels 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 Meli Hotels International are associated (or correlated) with AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of Meli Hotels i.e., Meli Hotels and AutoZone go up and down completely randomly.

Pair Corralation between Meli Hotels and AutoZone

Assuming the 90 days horizon Meli Hotels International is expected to under-perform the AutoZone. In addition to that, Meli Hotels is 1.42 times more volatile than AutoZone. It trades about -0.07 of its total potential returns per unit of risk. AutoZone is currently generating about 0.09 per unit of volatility. If you would invest  311,700  in AutoZone on December 20, 2024 and sell it today you would earn a total of  17,900  from holding AutoZone or generate 5.74% return on investment over 90 days.

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

Meli Hotels International  vs.  AutoZone

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.

AutoZone

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AutoZone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Meli Hotels and AutoZone

The main advantage of trading using opposite Meli Hotels and AutoZone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meli Hotels position performs unexpectedly, AutoZone 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 AutoZone will offset losses from the drop in AutoZone's long position.

The idea behind Meli Hotels International and AutoZone 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.