Correlation Between VITEC SOFTWARE and MELIA HOTELS

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

By analyzing existing cross correlation between VITEC SOFTWARE GROUP and MELIA HOTELS, you can compare the effects of market volatilities on VITEC SOFTWARE and MELIA 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 VITEC SOFTWARE with a short position of MELIA HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of VITEC SOFTWARE and MELIA HOTELS.

Diversification Opportunities for VITEC SOFTWARE and MELIA HOTELS

-0.63

Correlation Coefficient

VITEC SOFTWARE  MELIA HOTELS

Excellent diversification

The 3 months correlation between VITEC and MELIA is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding VITEC SOFTWARE GROUP and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and VITEC SOFTWARE 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 VITEC SOFTWARE GROUP are associated (or correlated) with MELIA HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MELIA HOTELS has no effect on the direction of VITEC SOFTWARE i.e., VITEC SOFTWARE and MELIA HOTELS go up and down completely randomly.

Pair Corralation between VITEC SOFTWARE and MELIA HOTELS

Assuming the 90 days horizon VITEC SOFTWARE is expected to generate 4.58 times less return on investment than MELIA HOTELS. But when comparing it to its historical volatility, VITEC SOFTWARE GROUP is 1.01 times less risky than MELIA HOTELS. It trades about 0.01 of its potential returns per unit of risk. MELIA HOTELS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  605.00  in MELIA HOTELS on September 4, 2024 and sell it today you would earn a total of  64.00  from holding MELIA HOTELS or generate 10.58% return on investment over 90 days.

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

VITEC SOFTWARE GROUP  vs.  MELIA HOTELS

VITEC SOFTWARE GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VITEC SOFTWARE GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

MELIA HOTELS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MELIA HOTELS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, MELIA HOTELS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with VITEC SOFTWARE and MELIA HOTELS

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

The idea behind VITEC SOFTWARE GROUP and MELIA HOTELS 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.