Correlation Between Meli Hotels and Deutsche Wohnen

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

Diversification Opportunities for Meli Hotels and Deutsche Wohnen

-0.53

Correlation Coefficient

Meli Hotels  Deutsche Wohnen

Excellent diversification

The 3 months correlation between Meli and Deutsche is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Deutsche Wohnen SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Wohnen SE 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 Deutsche Wohnen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Wohnen SE has no effect on the direction of Meli Hotels i.e., Meli Hotels and Deutsche Wohnen go up and down completely randomly.

Pair Corralation between Meli Hotels and Deutsche Wohnen

Assuming the 90 days horizon Meli Hotels is expected to generate 17.49 times less return on investment than Deutsche Wohnen. But when comparing it to its historical volatility, Meli Hotels International is 1.29 times less risky than Deutsche Wohnen. It trades about 0.01 of its potential returns per unit of risk. Deutsche Wohnen SE is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,726  in Deutsche Wohnen SE on September 24, 2024 and sell it today you would earn a total of  594.00  from holding Deutsche Wohnen SE or generate 34.41% return on investment over 90 days.

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

Meli Hotels International  vs.  Deutsche Wohnen SE

Meli Hotels International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Meli Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deutsche Wohnen SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Wohnen SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Deutsche Wohnen is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Meli Hotels and Deutsche Wohnen

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

The idea behind Meli Hotels International and Deutsche Wohnen SE 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.