Correlation Between Meli Hotels and Wendys

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

By analyzing existing cross correlation between Meli Hotels International and The Wendys Co, you can compare the effects of market volatilities on Meli Hotels and Wendys 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 Meli Hotels with a short position of Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meli Hotels and Wendys.

Diversification Opportunities for Meli Hotels and Wendys

0.53

Correlation Coefficient

Meli Hotels  Wendys

Very weak diversification

The 3 months correlation between Meli and Wendys is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Meli Hotels International and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys and Meli 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 Meli Hotels International are associated (or correlated) with Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Meli Hotels i.e., Meli Hotels and Wendys go up and down completely randomly.

Pair Corralation between Meli Hotels and Wendys

Assuming the 90 days horizon Meli Hotels International is expected to under-perform the Wendys. In addition to that, Meli Hotels is 1.2 times more volatile than The Wendys Co. It trades about -0.06 of its total potential returns per unit of risk. The Wendys Co is currently generating about 0.04 per unit of volatility. If you would invest  1,620  in The Wendys Co on September 12, 2024 and sell it today you would earn a total of  128.00  from holding The Wendys Co or generate 7.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.2%
Values	Daily Returns

Meli Hotels International  vs.  The Wendys Co

Meli Hotels International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meli Hotels International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Meli Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

The Wendys

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Meli Hotels and Wendys

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

The idea behind Meli Hotels International and The Wendys 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.