Correlation Between Northstar Clean and Meliá Hotels

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

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

Diversification Opportunities for Northstar Clean and Meliá Hotels

0.8

Correlation Coefficient

Northstar Clean  Meliá Hotels

Very poor diversification

The 3 months correlation between Northstar and Meliá is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northstar Clean Technologies 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 Northstar Clean 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 Northstar Clean Technologies are associated (or correlated) with Meliá 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 Northstar Clean i.e., Northstar Clean and Meliá Hotels go up and down completely randomly.

Pair Corralation between Northstar Clean and Meliá Hotels

Assuming the 90 days horizon Northstar Clean Technologies is expected to generate 3.29 times more return on investment than Meliá Hotels. However, Northstar Clean is 3.29 times more volatile than Meli Hotels International. It trades about 0.24 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.13 per unit of risk. If you would invest  16.00  in Northstar Clean Technologies on October 23, 2024 and sell it today you would earn a total of  11.00  from holding Northstar Clean Technologies or generate 68.75% return on investment over 90 days.

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

Northstar Clean Technologies  vs.  Meli Hotels International

Northstar Clean Tech

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northstar Clean Technologies are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northstar Clean reported solid returns over the last few months and may actually be approaching a breakup point.

Meli Hotels International

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Meliá Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Northstar Clean and Meliá Hotels

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

The idea behind Northstar Clean Technologies 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.