Correlation Between Alibaba Group and Melco Resorts
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Melco Resorts 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 Alibaba Group and Melco Resorts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holding and Melco Resorts Entertainment, you can compare the effects of market volatilities on Alibaba Group and Melco Resorts 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 Alibaba Group with a short position of Melco Resorts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Melco Resorts.
Diversification Opportunities for Alibaba Group and Melco Resorts
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Alibaba and Melco is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Melco Resorts Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melco Resorts Entert and Alibaba Group 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 Alibaba Group Holding are associated (or correlated) with Melco Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melco Resorts Entert has no effect on the direction of Alibaba Group i.e., Alibaba Group and Melco Resorts go up and down completely randomly.
Pair Corralation between Alibaba Group and Melco Resorts
Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Melco Resorts. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.12 times less risky than Melco Resorts. The stock trades about -0.12 of its potential returns per unit of risk. The Melco Resorts Entertainment is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,860 in Melco Resorts Entertainment on October 7, 2024 and sell it today you would lose (88.00) from holding Melco Resorts Entertainment or give up 4.73% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 92.68% |
Values | Daily Returns |
Alibaba Group Holding vs. Melco Resorts Entertainment
Performance |
Timeline |
Alibaba Group Holding |
Melco Resorts Entert |
Alibaba Group and Melco Resorts Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Alibaba Group and Melco Resorts
The main advantage of trading using opposite Alibaba Group and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Melco Resorts 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 Melco Resorts will offset losses from the drop in Melco Resorts' long position.Alibaba Group vs. PDD Holdings | Alibaba Group vs. MercadoLibre | Alibaba Group vs. JD Inc Adr | Alibaba Group vs. Sea |
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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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