Correlation Between Melia Hotels and Plasticos Compuestos

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

By analyzing existing cross correlation between Melia Hotels and Plasticos Compuestos SA, you can compare the effects of market volatilities on Melia Hotels and Plasticos Compuestos 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 Plasticos Compuestos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Plasticos Compuestos.

Diversification Opportunities for Melia Hotels and Plasticos Compuestos

0.23

Correlation Coefficient

Melia Hotels  Plasticos Compuestos

Modest diversification

The 3 months correlation between Melia and Plasticos is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Plasticos Compuestos SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plasticos Compuestos 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 Plasticos Compuestos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plasticos Compuestos has no effect on the direction of Melia Hotels i.e., Melia Hotels and Plasticos Compuestos go up and down completely randomly.

Pair Corralation between Melia Hotels and Plasticos Compuestos

Assuming the 90 days trading horizon Melia Hotels is expected to under-perform the Plasticos Compuestos. In addition to that, Melia Hotels is 3.27 times more volatile than Plasticos Compuestos SA. It trades about -0.11 of its total potential returns per unit of risk. Plasticos Compuestos SA is currently generating about -0.03 per unit of volatility. If you would invest  101.00  in Plasticos Compuestos SA on December 30, 2024 and sell it today you would lose (1.00) from holding Plasticos Compuestos SA or give up 0.99% of portfolio value over 90 days.

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

Melia Hotels  vs.  Plasticos Compuestos SA

Melia Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Melia Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Plasticos Compuestos

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plasticos Compuestos SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Plasticos Compuestos is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Melia Hotels and Plasticos Compuestos

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

The idea behind Melia Hotels and Plasticos Compuestos SA 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.