Correlation Between Meli Hotels and Vita Coco

Can any of the company-specific risk be diversified away by investing in both Meli Hotels and Vita Coco 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 Meli Hotels and Vita Coco 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 Vita Coco, you can compare the effects of market volatilities on Meli Hotels and Vita Coco 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 Meli Hotels with a short position of Vita Coco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meli Hotels and Vita Coco.

Diversification Opportunities for Meli Hotels and Vita Coco

0.41

Correlation Coefficient

Meli Hotels  Vita Coco

Very weak diversification

The 3 months correlation between Meli and Vita is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Vita Coco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vita Coco and Meli 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 Vita Coco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vita Coco has no effect on the direction of Meli Hotels i.e., Meli Hotels and Vita Coco go up and down completely randomly.

Pair Corralation between Meli Hotels and Vita Coco

Assuming the 90 days horizon Meli Hotels is expected to generate 2.9 times less return on investment than Vita Coco. But when comparing it to its historical volatility, Meli Hotels International is 1.41 times less risky than Vita Coco. It trades about 0.04 of its potential returns per unit of risk. Vita Coco is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,349  in Vita Coco on October 11, 2024 and sell it today you would earn a total of  2,049  from holding Vita Coco or generate 151.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.98%
Values	Daily Returns

Meli Hotels International  vs.  Vita Coco

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 inconsistent basic indicators, Meli Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vita Coco

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vita Coco are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Vita Coco displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meli Hotels and Vita Coco

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

The idea behind Meli Hotels International and Vita Coco 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.