Correlation Between Metrovacesa and Melia Hotels

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

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

Diversification Opportunities for Metrovacesa and Melia Hotels

0.49

Correlation Coefficient

Metrovacesa  Melia Hotels

Very weak diversification

The 3 months correlation between Metrovacesa and Melia is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Metrovacesa SA and Melia Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melia Hotels and Metrovacesa 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 Metrovacesa SA 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 Metrovacesa i.e., Metrovacesa and Melia Hotels go up and down completely randomly.

Pair Corralation between Metrovacesa and Melia Hotels

Assuming the 90 days trading horizon Metrovacesa SA is expected to generate 0.86 times more return on investment than Melia Hotels. However, Metrovacesa SA is 1.16 times less risky than Melia Hotels. It trades about 0.11 of its potential returns per unit of risk. Melia Hotels is currently generating about 0.09 per unit of risk. If you would invest  820.00  in Metrovacesa SA on September 4, 2024 and sell it today you would earn a total of  58.00  from holding Metrovacesa SA or generate 7.07% return on investment over 90 days.

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

Metrovacesa SA  vs.  Melia Hotels

Metrovacesa SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metrovacesa SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Metrovacesa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Melia Hotels

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Melia Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Metrovacesa and Melia Hotels

The main advantage of trading using opposite Metrovacesa and Melia Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metrovacesa 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 Metrovacesa SA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.