Correlation Between SALESFORCE INC and MELIA HOTELS

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

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

Diversification Opportunities for SALESFORCE INC and MELIA HOTELS

0.85

Correlation Coefficient

SALESFORCE INC  MELIA HOTELS

Very poor diversification

The 3 months correlation between SALESFORCE and MELIA is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SALESFORCE INC CDR and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and SALESFORCE INC 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 SALESFORCE INC CDR 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 SALESFORCE INC i.e., SALESFORCE INC and MELIA HOTELS go up and down completely randomly.

Pair Corralation between SALESFORCE INC and MELIA HOTELS

Assuming the 90 days trading horizon SALESFORCE INC CDR is expected to generate 1.42 times more return on investment than MELIA HOTELS. However, SALESFORCE INC is 1.42 times more volatile than MELIA HOTELS. It trades about 0.22 of its potential returns per unit of risk. MELIA HOTELS is currently generating about 0.07 per unit of risk. If you would invest  1,317  in SALESFORCE INC CDR on September 3, 2024 and sell it today you would earn a total of  453.00  from holding SALESFORCE INC CDR or generate 34.4% return on investment over 90 days.

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

SALESFORCE INC CDR  vs.  MELIA HOTELS

SALESFORCE INC CDR

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SALESFORCE INC CDR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SALESFORCE INC reported solid returns over the last few months and may actually be approaching a breakup point.

MELIA HOTELS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MELIA HOTELS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, MELIA HOTELS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SALESFORCE INC and MELIA HOTELS

The main advantage of trading using opposite SALESFORCE INC and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SALESFORCE INC 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 SALESFORCE INC CDR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.