Correlation Between CHINA HUARONG and Meli Hotels

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

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and Meli Hotels International, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of Meli Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Meli Hotels.

Diversification Opportunities for CHINA HUARONG and Meli Hotels

0.43

Correlation Coefficient

CHINA HUARONG  Meli Hotels

Very weak diversification

The 3 months correlation between CHINA and Meli is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and Meli Hotels go up and down completely randomly.

Pair Corralation between CHINA HUARONG and Meli Hotels

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 22.85 times more return on investment than Meli Hotels. However, CHINA HUARONG is 22.85 times more volatile than Meli Hotels International. It trades about 0.1 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.07 per unit of risk. If you would invest  0.10  in CHINA HUARONG ENERHD 50 on August 30, 2024 and sell it today you would earn a total of  0.00  from holding CHINA HUARONG ENERHD 50 or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

CHINA HUARONG ENERHD 50  vs.  Meli Hotels International

CHINA HUARONG ENERHD

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Meli Hotels International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Meli Hotels is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHINA HUARONG and Meli Hotels

The main advantage of trading using opposite CHINA HUARONG and Meli Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.