Correlation Between Melia Hotels and Tier1 Technology

Can any of the company-specific risk be diversified away by investing in both Melia Hotels and Tier1 Technology 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 Tier1 Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Melia Hotels and Tier1 Technology SA, you can compare the effects of market volatilities on Melia Hotels and Tier1 Technology 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 Tier1 Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melia Hotels and Tier1 Technology.

Diversification Opportunities for Melia Hotels and Tier1 Technology

0.29

Correlation Coefficient

Melia Hotels  Tier1 Technology

Modest diversification

The 3 months correlation between Melia and Tier1 is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Melia Hotels and Tier1 Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tier1 Technology 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 Tier1 Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tier1 Technology has no effect on the direction of Melia Hotels i.e., Melia Hotels and Tier1 Technology go up and down completely randomly.

Pair Corralation between Melia Hotels and Tier1 Technology

Assuming the 90 days trading horizon Melia Hotels is expected to generate 1.35 times less return on investment than Tier1 Technology. But when comparing it to its historical volatility, Melia Hotels is 2.09 times less risky than Tier1 Technology. It trades about 0.1 of its potential returns per unit of risk. Tier1 Technology SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  272.00  in Tier1 Technology SA on September 5, 2024 and sell it today you would earn a total of  24.00  from holding Tier1 Technology SA or generate 8.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Melia Hotels  vs.  Tier1 Technology SA

Melia Hotels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melia Hotels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Melia Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tier1 Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tier1 Technology SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Tier1 Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Melia Hotels and Tier1 Technology

The main advantage of trading using opposite Melia Hotels and Tier1 Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Melia Hotels position performs unexpectedly, Tier1 Technology 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 Tier1 Technology will offset losses from the drop in Tier1 Technology's long position.

The idea behind Melia Hotels and Tier1 Technology SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.