Correlation Between Melia Hotels and Labiana Health

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

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

Diversification Opportunities for Melia Hotels and Labiana Health

-0.75

Correlation Coefficient

Melia Hotels  Labiana Health

Pay attention - limited upside

The 3 months correlation between Melia and Labiana is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Labiana Health SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labiana Health SA 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 Labiana Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labiana Health SA has no effect on the direction of Melia Hotels i.e., Melia Hotels and Labiana Health go up and down completely randomly.

Pair Corralation between Melia Hotels and Labiana Health

Assuming the 90 days trading horizon Melia Hotels is expected to generate 0.38 times more return on investment than Labiana Health. However, Melia Hotels is 2.6 times less risky than Labiana Health. It trades about 0.15 of its potential returns per unit of risk. Labiana Health SA is currently generating about -0.15 per unit of risk. If you would invest  654.00  in Melia Hotels on September 13, 2024 and sell it today you would earn a total of  86.00  from holding Melia Hotels or generate 13.15% return on investment over 90 days.

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

Melia Hotels  vs.  Labiana Health SA

Melia Hotels

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Melia Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Labiana Health SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Labiana Health SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Melia Hotels and Labiana Health

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

The idea behind Melia Hotels and Labiana Health 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.