Correlation Between Banyan Tree and Red Rock

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

By analyzing existing cross correlation between Banyan Tree Holdings and Red Rock Resorts, you can compare the effects of market volatilities on Banyan Tree and Red Rock 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 Banyan Tree with a short position of Red Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banyan Tree and Red Rock.

Diversification Opportunities for Banyan Tree and Red Rock

0.59

Correlation Coefficient

Banyan Tree  Red Rock

Very weak diversification

The 3 months correlation between Banyan and Red is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Banyan Tree Holdings and Red Rock Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Rock Resorts and Banyan Tree 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 Banyan Tree Holdings are associated (or correlated) with Red Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Rock Resorts has no effect on the direction of Banyan Tree i.e., Banyan Tree and Red Rock go up and down completely randomly.

Pair Corralation between Banyan Tree and Red Rock

Assuming the 90 days horizon Banyan Tree Holdings is expected to under-perform the Red Rock. In addition to that, Banyan Tree is 6.09 times more volatile than Red Rock Resorts. It trades about -0.09 of its total potential returns per unit of risk. Red Rock Resorts is currently generating about -0.05 per unit of volatility. If you would invest  5,316  in Red Rock Resorts on September 14, 2024 and sell it today you would lose (367.00) from holding Red Rock Resorts or give up 6.9% of portfolio value over 90 days.

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

Banyan Tree Holdings  vs.  Red Rock Resorts

Banyan Tree Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banyan Tree Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Red Rock Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Rock Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Red Rock is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Banyan Tree and Red Rock

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

The idea behind Banyan Tree Holdings and Red Rock Resorts 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.