Correlation Between Meliá Hotels and Bt Brands

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

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

Diversification Opportunities for Meliá Hotels and Bt Brands

-0.22

Correlation Coefficient

Meliá Hotels  Bt Brands

Very good diversification

The 3 months correlation between Meliá and BTBD is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands and Meliá Hotels 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 Meli Hotels International are associated (or correlated) with Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of Meliá Hotels i.e., Meliá Hotels and Bt Brands go up and down completely randomly.

Pair Corralation between Meliá Hotels and Bt Brands

Assuming the 90 days horizon Meli Hotels International is expected to under-perform the Bt Brands. But the pink sheet apears to be less risky and, when comparing its historical volatility, Meli Hotels International is 2.78 times less risky than Bt Brands. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Bt Brands is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  164.00  in Bt Brands on December 4, 2024 and sell it today you would lose (10.00) from holding Bt Brands or give up 6.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.66%
Values	Daily Returns

Meli Hotels International  vs.  Bt Brands

Meli Hotels International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meli Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Bt Brands

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Meliá Hotels and Bt Brands

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

The idea behind Meli Hotels International and Bt Brands 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.