Correlation Between BRF SA and Meli Hotels

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

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

Diversification Opportunities for BRF SA and Meli Hotels

0.52

Correlation Coefficient

BRF SA  Meli Hotels

Very weak diversification

The 3 months correlation between BRF and Meli is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA 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 BRF SA 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 BRF SA 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 BRF SA i.e., BRF SA and Meli Hotels go up and down completely randomly.

Pair Corralation between BRF SA and Meli Hotels

Assuming the 90 days horizon BRF SA is expected to generate 2.1 times more return on investment than Meli Hotels. However, BRF SA is 2.1 times more volatile than Meli Hotels International. It trades about 0.07 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.04 per unit of risk. If you would invest  146.00  in BRF SA on October 5, 2024 and sell it today you would earn a total of  242.00  from holding BRF SA or generate 165.75% return on investment over 90 days.

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

BRF SA  vs.  Meli Hotels International

BRF SA

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days BRF SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, BRF SA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Meli Hotels International

Risk-Adjusted Performance

0 of 100

Good

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 BRF SA and Meli Hotels

The main advantage of trading using opposite BRF SA and Meli Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRF SA 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 BRF SA 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.