Correlation Between Merida Industry and First Hotel

Can any of the company-specific risk be diversified away by investing in both Merida Industry and First Hotel 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 Merida Industry and First Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merida Industry Co and First Hotel Co, you can compare the effects of market volatilities on Merida Industry and First Hotel 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 Merida Industry with a short position of First Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merida Industry and First Hotel.

Diversification Opportunities for Merida Industry and First Hotel

0.38

Correlation Coefficient

Merida Industry  First Hotel

Weak diversification

The 3 months correlation between Merida and First is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Merida Industry Co and First Hotel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Hotel and Merida Industry 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 Merida Industry Co are associated (or correlated) with First Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Hotel has no effect on the direction of Merida Industry i.e., Merida Industry and First Hotel go up and down completely randomly.

Pair Corralation between Merida Industry and First Hotel

Assuming the 90 days trading horizon Merida Industry Co is expected to under-perform the First Hotel. In addition to that, Merida Industry is 3.88 times more volatile than First Hotel Co. It trades about -0.33 of its total potential returns per unit of risk. First Hotel Co is currently generating about -0.1 per unit of volatility. If you would invest  1,500  in First Hotel Co on September 26, 2024 and sell it today you would lose (50.00) from holding First Hotel Co or give up 3.33% of portfolio value over 90 days.

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

Merida Industry Co  vs.  First Hotel Co

Merida Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merida Industry Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

First Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Hotel Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Hotel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merida Industry and First Hotel

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

The idea behind Merida Industry Co and First Hotel Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.