Correlation Between Melia Hotels and Aurora Investment

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

By analyzing existing cross correlation between Melia Hotels and Aurora Investment Trust, you can compare the effects of market volatilities on Melia Hotels and Aurora Investment 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 Aurora Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Aurora Investment.

Diversification Opportunities for Melia Hotels and Aurora Investment

-0.68

Correlation Coefficient

Melia Hotels  Aurora Investment

Excellent diversification

The 3 months correlation between Melia and Aurora is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Aurora Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Investment Trust 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 Aurora Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Investment Trust has no effect on the direction of Melia Hotels i.e., Melia Hotels and Aurora Investment go up and down completely randomly.

Pair Corralation between Melia Hotels and Aurora Investment

Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.04 times more return on investment than Aurora Investment. However, Melia Hotels is 1.04 times more volatile than Aurora Investment Trust. It trades about 0.17 of its potential returns per unit of risk. Aurora Investment Trust is currently generating about -0.13 per unit of risk. If you would invest  651.00  in Melia Hotels on September 13, 2024 and sell it today you would earn a total of  92.00  from holding Melia Hotels or generate 14.13% return on investment over 90 days.

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

Melia Hotels  vs.  Aurora Investment Trust

Melia Hotels

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Melia Hotels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aurora Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Melia Hotels and Aurora Investment

The main advantage of trading using opposite Melia Hotels and Aurora Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Aurora Investment 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 Aurora Investment will offset losses from the drop in Aurora Investment's long position.

The idea behind Melia Hotels and Aurora Investment Trust 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.