Correlation Between Federal Agricultural and MELIA HOTELS

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

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

Diversification Opportunities for Federal Agricultural and MELIA HOTELS

0.78

Correlation Coefficient

Federal Agricultural  MELIA HOTELS

Poor diversification

The 3 months correlation between Federal and MELIA is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and Federal Agricultural 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 Federal Agricultural Mortgage 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 Federal Agricultural i.e., Federal Agricultural and MELIA HOTELS go up and down completely randomly.

Pair Corralation between Federal Agricultural and MELIA HOTELS

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 1.24 times more return on investment than MELIA HOTELS. However, Federal Agricultural is 1.24 times more volatile than MELIA HOTELS. It trades about 0.15 of its potential returns per unit of risk. MELIA HOTELS is currently generating about 0.17 per unit of risk. If you would invest  16,800  in Federal Agricultural Mortgage on September 17, 2024 and sell it today you would earn a total of  3,400  from holding Federal Agricultural Mortgage or generate 20.24% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  MELIA HOTELS

Federal Agricultural

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

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 fragile basic indicators, MELIA HOTELS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and MELIA HOTELS

The main advantage of trading using opposite Federal Agricultural and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural 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 Federal Agricultural Mortgage 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 Commodity Directory module to find actively traded commodities issued by global exchanges.