Correlation Between Westinghouse Air and Meliá Hotels

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

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

Diversification Opportunities for Westinghouse Air and Meliá Hotels

0.54

Correlation Coefficient

Westinghouse Air  Meliá Hotels

Very weak diversification

The 3 months correlation between Westinghouse and Meliá is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake 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 Westinghouse Air 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 Westinghouse Air Brake are associated (or correlated) with Meliá 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 Westinghouse Air i.e., Westinghouse Air and Meliá Hotels go up and down completely randomly.

Pair Corralation between Westinghouse Air and Meliá Hotels

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.86 times more return on investment than Meliá Hotels. However, Westinghouse Air Brake is 1.16 times less risky than Meliá Hotels. It trades about 0.12 of its potential returns per unit of risk. Meli Hotels International is currently generating about -0.02 per unit of risk. If you would invest  15,462  in Westinghouse Air Brake on October 20, 2024 and sell it today you would earn a total of  3,673  from holding Westinghouse Air Brake or generate 23.76% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Meli Hotels International

Westinghouse Air Brake

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Meli Hotels International

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Westinghouse Air and Meliá Hotels

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

The idea behind Westinghouse Air Brake 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.