Correlation Between Warner Music and Meli Hotels

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

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

Diversification Opportunities for Warner Music and Meli Hotels

0.25

Correlation Coefficient

Warner Music  Meli Hotels

Modest diversification

The 3 months correlation between Warner and Meli is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Meli Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meli Hotels International and Warner Music 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 Warner Music Group are associated (or correlated) with Meli Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meli Hotels International has no effect on the direction of Warner Music i.e., Warner Music and Meli Hotels go up and down completely randomly.

Pair Corralation between Warner Music and Meli Hotels

Assuming the 90 days horizon Warner Music Group is expected to generate 1.16 times more return on investment than Meli Hotels. However, Warner Music is 1.16 times more volatile than Meli Hotels International. It trades about 0.01 of its potential returns per unit of risk. Meli Hotels International is currently generating about -0.09 per unit of risk. If you would invest  2,969  in Warner Music Group on December 22, 2024 and sell it today you would earn a total of  15.00  from holding Warner Music Group or generate 0.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Warner Music Group  vs.  Meli Hotels International

Warner Music Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Warner Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Warner Music and Meli Hotels

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

The idea behind Warner Music Group and Meli Hotels International 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.