Correlation Between Merlin Properties and Melia Hotels

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

By analyzing existing cross correlation between Merlin Properties SOCIMI and Melia Hotels, you can compare the effects of market volatilities on Merlin Properties 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 Merlin Properties with a short position of Melia Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merlin Properties and Melia Hotels.

Diversification Opportunities for Merlin Properties and Melia Hotels

0.46

Correlation Coefficient

Merlin Properties  Melia Hotels

Very weak diversification

The 3 months correlation between Merlin and Melia is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merlin Properties SOCIMI and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Merlin Properties 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 Merlin Properties SOCIMI 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 Merlin Properties i.e., Merlin Properties and Melia Hotels go up and down completely randomly.

Pair Corralation between Merlin Properties and Melia Hotels

Assuming the 90 days trading horizon Merlin Properties SOCIMI is expected to generate 1.11 times more return on investment than Melia Hotels. However, Merlin Properties is 1.11 times more volatile than Melia Hotels. It trades about 0.0 of its potential returns per unit of risk. Melia Hotels is currently generating about -0.11 per unit of risk. If you would invest  1,010  in Merlin Properties SOCIMI on December 29, 2024 and sell it today you would lose (11.00) from holding Merlin Properties SOCIMI or give up 1.09% of portfolio value over 90 days.

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

Merlin Properties SOCIMI  vs.  Melia Hotels

Merlin Properties SOCIMI

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merlin Properties SOCIMI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Merlin Properties is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Merlin Properties and Melia Hotels

The main advantage of trading using opposite Merlin Properties and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merlin Properties 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' long position.

The idea behind Merlin Properties SOCIMI 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.