Correlation Between Alibaba Group and Melco Resorts

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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 Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy92.68%
ValuesDaily Returns

Alibaba Group Holding  vs.  Melco Resorts Entertainment

 Performance 
       Timeline  
Alibaba Group Holding 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Melco Resorts Entert 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Melco Resorts Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.
The idea behind Alibaba Group Holding and Melco Resorts Entertainment 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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