Correlation Between Meliá Hotels and Target

Can any of the company-specific risk be diversified away by investing in both Meliá Hotels and Target 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 Meliá Hotels and Target 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 Target, you can compare the effects of market volatilities on Meliá Hotels and Target 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 Meliá Hotels with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meliá Hotels and Target.

Diversification Opportunities for Meliá Hotels and Target

0.07

Correlation Coefficient

Meliá Hotels  Target

Significant diversification

The 3 months correlation between Meliá and Target is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Meliá 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Meliá Hotels i.e., Meliá Hotels and Target go up and down completely randomly.

Pair Corralation between Meliá Hotels and Target

Assuming the 90 days horizon Meli Hotels International is expected to generate 0.86 times more return on investment than Target. However, Meli Hotels International is 1.17 times less risky than Target. It trades about 0.02 of its potential returns per unit of risk. Target is currently generating about -0.15 per unit of risk. If you would invest  729.00  in Meli Hotels International on December 5, 2024 and sell it today you would earn a total of  5.00  from holding Meli Hotels International or generate 0.69% 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.  Target

Meli Hotels International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Meliá Hotels may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Target

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Meliá Hotels and Target

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

The idea behind Meli Hotels International and Target 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.