Correlation Between Melia Hotels and Iberdrola
Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Iberdrola 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 Melia Hotels and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Melia Hotels and Iberdrola SA, you can compare the effects of market volatilities on Melia Hotels and Iberdrola 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 Melia Hotels with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Iberdrola.
Diversification Opportunities for Melia Hotels and Iberdrola
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Melia and Iberdrola is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Melia Hotels 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 Melia Hotels are associated (or correlated) with Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of Melia Hotels i.e., Melia Hotels and Iberdrola go up and down completely randomly.
Pair Corralation between Melia Hotels and Iberdrola
Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.74 times more return on investment than Iberdrola. However, Melia Hotels is 1.74 times more volatile than Iberdrola SA. It trades about 0.03 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.04 per unit of risk. If you would invest 725.00 in Melia Hotels on February 2, 2024 and sell it today you would earn a total of 6.00 from holding Melia Hotels or generate 0.83% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Melia Hotels vs. Iberdrola SA
Performance |
Timeline |
Melia Hotels |
Iberdrola SA |
Melia Hotels and Iberdrola Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Melia Hotels and Iberdrola
The main advantage of trading using opposite Melia Hotels and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Iberdrola 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 Iberdrola will offset losses from the drop in Iberdrola's long position.Melia Hotels vs. International Consolidated Airlines | Melia Hotels vs. Merlin Properties SOCIMI | Melia Hotels vs. Aena SA | Melia Hotels vs. Acerinox |
Check out your portfolio center.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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