Correlation Between Meliá Hotels and NH HOTEL

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

Diversification Opportunities for Meliá Hotels and NH HOTEL

0.43

Correlation Coefficient

Meliá Hotels  NH HOTEL

Very weak diversification

The 3 months correlation between Meliá and NH5 is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and NH HOTEL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NH HOTEL GROUP 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 NH HOTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NH HOTEL GROUP has no effect on the direction of Meliá Hotels i.e., Meliá Hotels and NH HOTEL go up and down completely randomly.

Pair Corralation between Meliá Hotels and NH HOTEL

Assuming the 90 days horizon Meliá Hotels is expected to generate 1.67 times less return on investment than NH HOTEL. In addition to that, Meliá Hotels is 1.94 times more volatile than NH HOTEL GROUP. It trades about 0.04 of its total potential returns per unit of risk. NH HOTEL GROUP is currently generating about 0.14 per unit of volatility. If you would invest  614.00  in NH HOTEL GROUP on December 4, 2024 and sell it today you would earn a total of  14.00  from holding NH HOTEL GROUP or generate 2.28% 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.  NH HOTEL GROUP

Meli Hotels International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Meliá Hotels is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

NH HOTEL GROUP

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NH HOTEL GROUP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NH HOTEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meliá Hotels and NH HOTEL

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

The idea behind Meli Hotels International and NH HOTEL GROUP 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.