Correlation Between Norfolk Southern and Meli Hotels

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

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

Diversification Opportunities for Norfolk Southern and Meli Hotels

0.26

Correlation Coefficient

Norfolk Southern  Meli Hotels

Modest diversification

The 3 months correlation between Norfolk and Meli is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Norfolk Southern and Meli Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meli Hotels International and Norfolk Southern 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 Norfolk Southern are associated (or correlated) with Meli Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meli Hotels International has no effect on the direction of Norfolk Southern i.e., Norfolk Southern and Meli Hotels go up and down completely randomly.

Pair Corralation between Norfolk Southern and Meli Hotels

Assuming the 90 days horizon Norfolk Southern is expected to generate 1.54 times less return on investment than Meli Hotels. But when comparing it to its historical volatility, Norfolk Southern is 1.04 times less risky than Meli Hotels. It trades about 0.03 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  603.00  in Meli Hotels International on October 5, 2024 and sell it today you would earn a total of  126.00  from holding Meli Hotels International or generate 20.9% return on investment over 90 days.

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

Norfolk Southern  vs.  Meli Hotels International

Norfolk Southern

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Norfolk Southern has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norfolk Southern is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Meli Hotels International

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Meli Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Meli Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norfolk Southern and Meli Hotels

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

The idea behind Norfolk Southern and Meli Hotels International 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.