Correlation Between Melia Hotels and Home Capital

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

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

Diversification Opportunities for Melia Hotels and Home Capital

0.3

Correlation Coefficient

Melia Hotels  Home Capital

Weak diversification

The 3 months correlation between Melia and Home is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Home Capital Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Capital Rentals 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 Home Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Capital Rentals has no effect on the direction of Melia Hotels i.e., Melia Hotels and Home Capital go up and down completely randomly.

Pair Corralation between Melia Hotels and Home Capital

Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.55 times more return on investment than Home Capital. However, Melia Hotels is 1.55 times more volatile than Home Capital Rentals. It trades about -0.08 of its potential returns per unit of risk. Home Capital Rentals is currently generating about -0.13 per unit of risk. If you would invest  744.00  in Melia Hotels on December 20, 2024 and sell it today you would lose (58.00) from holding Melia Hotels or give up 7.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Melia Hotels  vs.  Home Capital Rentals

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.

Home Capital Rentals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Melia Hotels and Home Capital

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

The idea behind Melia Hotels and Home Capital Rentals 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..