Correlation Between Meli Hotels and Eastern

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

Diversification Opportunities for Meli Hotels and Eastern

-0.35

Correlation Coefficient

Meli Hotels  Eastern

Very good diversification

The 3 months correlation between Meli and Eastern is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Meli Hotels i.e., Meli Hotels and Eastern go up and down completely randomly.

Pair Corralation between Meli Hotels and Eastern

Assuming the 90 days horizon Meli Hotels International is expected to generate 0.76 times more return on investment than Eastern. However, Meli Hotels International is 1.32 times less risky than Eastern. It trades about 0.06 of its potential returns per unit of risk. Eastern Co is currently generating about 0.04 per unit of risk. If you would invest  473.00  in Meli Hotels International on September 21, 2024 and sell it today you would earn a total of  306.00  from holding Meli Hotels International or generate 64.69% return on investment over 90 days.

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

Meli Hotels International  vs.  Eastern Co

Meli Hotels International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Meli Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Meli Hotels and Eastern

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

The idea behind Meli Hotels International and Eastern Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.