Correlation Between MELIA HOTELS and Hongkong

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

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

Diversification Opportunities for MELIA HOTELS and Hongkong

0.1

Correlation Coefficient

MELIA HOTELS  Hongkong

Average diversification

The 3 months correlation between MELIA and Hongkong is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding MELIA HOTELS and The Hongkong and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Hongkong 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 Hongkong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Hongkong has no effect on the direction of MELIA HOTELS i.e., MELIA HOTELS and Hongkong go up and down completely randomly.

Pair Corralation between MELIA HOTELS and Hongkong

Assuming the 90 days trading horizon MELIA HOTELS is expected to under-perform the Hongkong. But the stock apears to be less risky and, when comparing its historical volatility, MELIA HOTELS is 1.25 times less risky than Hongkong. The stock trades about -0.08 of its potential returns per unit of risk. The The Hongkong and is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  74.00  in The Hongkong and on December 21, 2024 and sell it today you would lose (6.00) from holding The Hongkong and or give up 8.11% of portfolio value over 90 days.

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

MELIA HOTELS  vs.  The Hongkong and

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 fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

The Hongkong

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Hongkong and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MELIA HOTELS and Hongkong

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

The idea behind MELIA HOTELS and The Hongkong and 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.