Correlation Between John Wiley and Meliá Hotels

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

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

Diversification Opportunities for John Wiley and Meliá Hotels

0.23

Correlation Coefficient

John Wiley  Meliá Hotels

Modest diversification

The 3 months correlation between John and Meliá is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding John Wiley Sons 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 John Wiley 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 John Wiley Sons 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 John Wiley i.e., John Wiley and Meliá Hotels go up and down completely randomly.

Pair Corralation between John Wiley and Meliá Hotels

Given the investment horizon of 90 days John Wiley Sons is expected to generate 2.03 times more return on investment than Meliá Hotels. However, John Wiley is 2.03 times more volatile than Meli Hotels International. It trades about 0.03 of its potential returns per unit of risk. Meli Hotels International is currently generating about -0.06 per unit of risk. If you would invest  4,379  in John Wiley Sons on December 22, 2024 and sell it today you would earn a total of  86.00  from holding John Wiley Sons or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.67%
Values	Daily Returns

John Wiley Sons  vs.  Meli Hotels International

John Wiley Sons

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in John Wiley Sons are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, John Wiley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 conflicting 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 John Wiley and Meliá Hotels

The main advantage of trading using opposite John Wiley and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if John Wiley 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 John Wiley Sons 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.