Correlation Between MELIA HOTELS and Linde Plc

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

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

Diversification Opportunities for MELIA HOTELS and Linde Plc

-0.64

Correlation Coefficient

MELIA HOTELS  Linde Plc

Excellent diversification

The 3 months correlation between MELIA and Linde is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding MELIA HOTELS and Linde plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linde plc 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 Linde Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linde plc has no effect on the direction of MELIA HOTELS i.e., MELIA HOTELS and Linde Plc go up and down completely randomly.

Pair Corralation between MELIA HOTELS and Linde Plc

Assuming the 90 days trading horizon MELIA HOTELS is expected to generate 2.07 times more return on investment than Linde Plc. However, MELIA HOTELS is 2.07 times more volatile than Linde plc. It trades about 0.06 of its potential returns per unit of risk. Linde plc is currently generating about -0.36 per unit of risk. If you would invest  714.00  in MELIA HOTELS on October 10, 2024 and sell it today you would earn a total of  10.00  from holding MELIA HOTELS or generate 1.4% 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.  Linde plc

MELIA HOTELS

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MELIA HOTELS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MELIA HOTELS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Linde plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linde plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 Linde Plc

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

The idea behind MELIA HOTELS and Linde plc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.