Correlation Between Ross Stores and MELIA HOTELS

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

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

Diversification Opportunities for Ross Stores and MELIA HOTELS

0.46

Correlation Coefficient

Ross Stores  MELIA HOTELS

Very weak diversification

The 3 months correlation between Ross and MELIA is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS and Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and MELIA HOTELS go up and down completely randomly.

Pair Corralation between Ross Stores and MELIA HOTELS

Assuming the 90 days trading horizon Ross Stores is expected to generate 2.4 times less return on investment than MELIA HOTELS. In addition to that, Ross Stores is 1.1 times more volatile than MELIA HOTELS. It trades about 0.05 of its total potential returns per unit of risk. MELIA HOTELS is currently generating about 0.13 per unit of volatility. If you would invest  648.00  in MELIA HOTELS on September 26, 2024 and sell it today you would earn a total of  85.00  from holding MELIA HOTELS or generate 13.12% return on investment over 90 days.

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

Ross Stores  vs.  MELIA HOTELS

Ross Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

MELIA HOTELS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MELIA HOTELS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MELIA HOTELS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ross Stores and MELIA HOTELS

The main advantage of trading using opposite Ross Stores and MELIA HOTELS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.