Correlation Between Meli Hotels and Charoen Pokphand

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

Diversification Opportunities for Meli Hotels and Charoen Pokphand

-0.53

Correlation Coefficient

Meli Hotels  Charoen Pokphand

Excellent diversification

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

Pair Corralation between Meli Hotels and Charoen Pokphand

Assuming the 90 days horizon Meli Hotels is expected to generate 1.88 times less return on investment than Charoen Pokphand. But when comparing it to its historical volatility, Meli Hotels International is 1.84 times less risky than Charoen Pokphand. It trades about 0.06 of its potential returns per unit of risk. Charoen Pokphand Foods is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  47.00  in Charoen Pokphand Foods on October 5, 2024 and sell it today you would earn a total of  20.00  from holding Charoen Pokphand Foods or generate 42.55% 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.  Charoen Pokphand Foods

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.

Charoen Pokphand Foods

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Meli Hotels and Charoen Pokphand

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

The idea behind Meli Hotels International and Charoen Pokphand Foods 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.