Correlation Between MELIA HOTELS and COSTCO WHOLESALE

Can any of the company-specific risk be diversified away by investing in both MELIA HOTELS and COSTCO WHOLESALE 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 COSTCO WHOLESALE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MELIA HOTELS and COSTCO WHOLESALE CDR, you can compare the effects of market volatilities on MELIA HOTELS and COSTCO WHOLESALE 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 COSTCO WHOLESALE. Check out your portfolio center. Please also check ongoing floating volatility patterns of MELIA HOTELS and COSTCO WHOLESALE.

Diversification Opportunities for MELIA HOTELS and COSTCO WHOLESALE

0.67

Correlation Coefficient

MELIA HOTELS  COSTCO WHOLESALE

Poor diversification

The 3 months correlation between MELIA and COSTCO is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding MELIA HOTELS and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR 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 COSTCO WHOLESALE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSTCO WHOLESALE CDR has no effect on the direction of MELIA HOTELS i.e., MELIA HOTELS and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between MELIA HOTELS and COSTCO WHOLESALE

Assuming the 90 days trading horizon MELIA HOTELS is expected to generate 0.97 times more return on investment than COSTCO WHOLESALE. However, MELIA HOTELS is 1.03 times less risky than COSTCO WHOLESALE. It trades about 0.26 of its potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about -0.27 per unit of risk. If you would invest  683.00  in MELIA HOTELS on October 5, 2024 and sell it today you would earn a total of  43.00  from holding MELIA HOTELS or generate 6.3% return on investment over 90 days.

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

MELIA HOTELS  vs.  COSTCO WHOLESALE CDR

MELIA HOTELS

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days MELIA HOTELS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, MELIA HOTELS unveiled solid returns over the last few months and may actually be approaching a breakup point.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days COSTCO WHOLESALE CDR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with MELIA HOTELS and COSTCO WHOLESALE

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

The idea behind MELIA HOTELS and COSTCO WHOLESALE CDR 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.