Correlation Between Meli Hotels and NetSol Technologies

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

Diversification Opportunities for Meli Hotels and NetSol Technologies

-0.24

Correlation Coefficient

Meli Hotels  NetSol Technologies

Very good diversification

The 3 months correlation between Meli and NetSol is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies 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 NetSol Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetSol Technologies has no effect on the direction of Meli Hotels i.e., Meli Hotels and NetSol Technologies go up and down completely randomly.

Pair Corralation between Meli Hotels and NetSol Technologies

Assuming the 90 days horizon Meli Hotels International is expected to generate 1.36 times more return on investment than NetSol Technologies. However, Meli Hotels is 1.36 times more volatile than NetSol Technologies. It trades about 0.21 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.1 per unit of risk. If you would invest  679.00  in Meli Hotels International on October 5, 2024 and sell it today you would earn a total of  50.00  from holding Meli Hotels International or generate 7.36% return on investment over 90 days.

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

Meli Hotels International  vs.  NetSol Technologies

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.

NetSol Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Meli Hotels and NetSol Technologies

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

The idea behind Meli Hotels International and NetSol Technologies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.