Correlation Between Yihai International and Meli Hotels

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

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

Diversification Opportunities for Yihai International and Meli Hotels

0.23

Correlation Coefficient

Yihai International  Meli Hotels

Modest diversification

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

Pair Corralation between Yihai International and Meli Hotels

Assuming the 90 days horizon Yihai International Holding is expected to generate 3.55 times more return on investment than Meli Hotels. However, Yihai International is 3.55 times more volatile than Meli Hotels International. It trades about 0.11 of its potential returns per unit of risk. Meli Hotels International is currently generating about 0.05 per unit of risk. If you would invest  52.00  in Yihai International Holding on September 14, 2024 and sell it today you would earn a total of  136.00  from holding Yihai International Holding or generate 261.54% return on investment over 90 days.

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

Yihai International Holding  vs.  Meli Hotels International

Yihai International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yihai International Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Yihai International reported solid returns over the last few months and may actually be approaching a breakup point.

Meli Hotels International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Meli Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Yihai International and Meli Hotels

The main advantage of trading using opposite Yihai International and Meli Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yihai International 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 Yihai International Holding 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.