Correlation Between Melia Hotels and ENCE Energa

Can any of the company-specific risk be diversified away by investing in both Melia Hotels and ENCE Energa 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 Melia Hotels and ENCE Energa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Melia Hotels and ENCE Energa y, you can compare the effects of market volatilities on Melia Hotels and ENCE Energa 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 Melia Hotels with a short position of ENCE Energa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and ENCE Energa.

Diversification Opportunities for Melia Hotels and ENCE Energa

0.14

Correlation Coefficient

Melia Hotels  ENCE Energa

Average diversification

The 3 months correlation between Melia and ENCE is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and ENCE Energa y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENCE Energa y and Melia 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 Melia Hotels are associated (or correlated) with ENCE Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENCE Energa y has no effect on the direction of Melia Hotels i.e., Melia Hotels and ENCE Energa go up and down completely randomly.

Pair Corralation between Melia Hotels and ENCE Energa

Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.04 times more return on investment than ENCE Energa. However, Melia Hotels is 1.04 times more volatile than ENCE Energa y. It trades about 0.03 of its potential returns per unit of risk. ENCE Energa y is currently generating about 0.03 per unit of risk. If you would invest  620.00  in Melia Hotels on November 19, 2024 and sell it today you would earn a total of  109.00  from holding Melia Hotels or generate 17.58% return on investment over 90 days.

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

Melia Hotels  vs.  ENCE Energa y

Melia Hotels

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Melia Hotels is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ENCE Energa y

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ENCE Energa y are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, ENCE Energa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Melia Hotels and ENCE Energa

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

The idea behind Melia Hotels and ENCE Energa y 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.