Correlation Between Meliá Hotels and Summit Hotel

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

Diversification Opportunities for Meliá Hotels and Summit Hotel

0.3

Correlation Coefficient

Meliá Hotels  Summit Hotel

Weak diversification

The 3 months correlation between Meliá and Summit is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and Summit Hotel Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Hotel Properties 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 Summit Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Hotel Properties has no effect on the direction of Meliá Hotels i.e., Meliá Hotels and Summit Hotel go up and down completely randomly.

Pair Corralation between Meliá Hotels and Summit Hotel

Assuming the 90 days horizon Meli Hotels International is expected to generate 2.41 times more return on investment than Summit Hotel. However, Meliá Hotels is 2.41 times more volatile than Summit Hotel Properties. It trades about 0.1 of its potential returns per unit of risk. Summit Hotel Properties is currently generating about 0.02 per unit of risk. If you would invest  559.00  in Meli Hotels International on December 8, 2024 and sell it today you would earn a total of  166.00  from holding Meli Hotels International or generate 29.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	15.18%
Values	Daily Returns

Meli Hotels International  vs.  Summit Hotel Properties

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 weak 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.

Summit Hotel Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Meliá Hotels and Summit Hotel

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

The idea behind Meli Hotels International and Summit Hotel Properties 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.