Correlation Between ITALIAN WINE and MELIA HOTELS

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

By analyzing existing cross correlation between ITALIAN WINE BRANDS and MELIA HOTELS, you can compare the effects of market volatilities on ITALIAN WINE and MELIA HOTELS 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 ITALIAN WINE with a short position of MELIA HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITALIAN WINE and MELIA HOTELS.

Diversification Opportunities for ITALIAN WINE and MELIA HOTELS

0.61

Correlation Coefficient

ITALIAN WINE  MELIA HOTELS

Poor diversification

The 3 months correlation between ITALIAN and MELIA is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ITALIAN WINE BRANDS and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and ITALIAN WINE 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 ITALIAN WINE BRANDS are associated (or correlated) with MELIA HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MELIA HOTELS has no effect on the direction of ITALIAN WINE i.e., ITALIAN WINE and MELIA HOTELS go up and down completely randomly.

Pair Corralation between ITALIAN WINE and MELIA HOTELS

Assuming the 90 days horizon ITALIAN WINE BRANDS is expected to under-perform the MELIA HOTELS. In addition to that, ITALIAN WINE is 1.59 times more volatile than MELIA HOTELS. It trades about -0.06 of its total potential returns per unit of risk. MELIA HOTELS is currently generating about -0.08 per unit of volatility. If you would invest  726.00  in MELIA HOTELS on December 30, 2024 and sell it today you would lose (70.00) from holding MELIA HOTELS or give up 9.64% of portfolio value over 90 days.

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

ITALIAN WINE BRANDS  vs.  MELIA HOTELS

ITALIAN WINE BRANDS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITALIAN WINE BRANDS 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.

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.

Pair Trading with ITALIAN WINE and MELIA HOTELS

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

The idea behind ITALIAN WINE BRANDS and MELIA HOTELS 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.