Correlation Between Walmart and Meliá Hotels

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

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

Diversification Opportunities for Walmart and Meliá Hotels

0.28

Correlation Coefficient

Walmart  Meliá Hotels

Modest diversification

The 3 months correlation between Walmart and Meliá is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Walmart 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 Walmart 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 Walmart 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 Walmart i.e., Walmart and Meliá Hotels go up and down completely randomly.

Pair Corralation between Walmart and Meliá Hotels

Assuming the 90 days trading horizon Walmart is expected to generate 0.81 times more return on investment than Meliá Hotels. However, Walmart is 1.23 times less risky than Meliá Hotels. It trades about 0.21 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  7,684  in Walmart on October 24, 2024 and sell it today you would earn a total of  1,327  from holding Walmart or generate 17.27% return on investment over 90 days.

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

Walmart  vs.  Meli Hotels International

Walmart

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Walmart and Meliá Hotels

The main advantage of trading using opposite Walmart and Meliá Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.