Correlation Between Meli Hotels and Bank of Nova Scotia

Can any of the company-specific risk be diversified away by investing in both Meli Hotels and Bank of Nova Scotia 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 Bank of Nova Scotia 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 The Bank of, you can compare the effects of market volatilities on Meli Hotels and Bank of Nova Scotia 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 Bank of Nova Scotia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meli Hotels and Bank of Nova Scotia.

Diversification Opportunities for Meli Hotels and Bank of Nova Scotia

0.58

Correlation Coefficient

Meli Hotels  Bank of Nova Scotia

Very weak diversification

The 3 months correlation between Meli and Bank is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and The Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nova Scotia 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 Bank of Nova Scotia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nova Scotia has no effect on the direction of Meli Hotels i.e., Meli Hotels and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between Meli Hotels and Bank of Nova Scotia

Assuming the 90 days horizon Meli Hotels International is expected to generate 1.4 times more return on investment than Bank of Nova Scotia. However, Meli Hotels is 1.4 times more volatile than The Bank of. It trades about 0.04 of its potential returns per unit of risk. The Bank of is currently generating about 0.03 per unit of risk. If you would invest  582.00  in Meli Hotels International on October 5, 2024 and sell it today you would earn a total of  147.00  from holding Meli Hotels International or generate 25.26% return on investment over 90 days.

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

Meli Hotels International  vs.  The Bank of

Meli Hotels International

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Meli Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Meli Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of Nova Scotia

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days The Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Meli Hotels and Bank of Nova Scotia

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

The idea behind Meli Hotels International and The Bank of 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.