Correlation Between Meliá Hotels and RCI Hospitality

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

Diversification Opportunities for Meliá Hotels and RCI Hospitality

0.07

Correlation Coefficient

Meliá Hotels  RCI Hospitality

Significant diversification

The 3 months correlation between Meliá and RCI is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings 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 RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Meliá Hotels i.e., Meliá Hotels and RCI Hospitality go up and down completely randomly.

Pair Corralation between Meliá Hotels and RCI Hospitality

Assuming the 90 days horizon Meliá Hotels is expected to generate 4.0 times less return on investment than RCI Hospitality. In addition to that, Meliá Hotels is 1.1 times more volatile than RCI Hospitality Holdings. It trades about 0.01 of its total potential returns per unit of risk. RCI Hospitality Holdings is currently generating about 0.07 per unit of volatility. If you would invest  4,096  in RCI Hospitality Holdings on December 5, 2024 and sell it today you would earn a total of  684.00  from holding RCI Hospitality Holdings or generate 16.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	42.62%
Values	Daily Returns

Meli Hotels International  vs.  RCI Hospitality Holdings

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 uncertain 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.

RCI Hospitality Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days RCI Hospitality Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, RCI Hospitality is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Meliá Hotels and RCI Hospitality

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

The idea behind Meli Hotels International and RCI Hospitality Holdings 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.