Correlation Between Carnival and Melco Resorts

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

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

Diversification Opportunities for Carnival and Melco Resorts

-0.8

Correlation Coefficient

Carnival  Melco Resorts

Pay attention - limited upside

The 3 months correlation between Carnival and Melco is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Carnival 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 Carnival 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 Carnival 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 Carnival i.e., Carnival and Melco Resorts go up and down completely randomly.

Pair Corralation between Carnival and Melco Resorts

Considering the 90-day investment horizon Carnival is expected to generate 1.05 times more return on investment than Melco Resorts. However, Carnival is 1.05 times more volatile than Melco Resorts Entertainment. It trades about -0.01 of its potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.17 per unit of risk. If you would invest  2,543  in Carnival on September 29, 2024 and sell it today you would lose (35.00) from holding Carnival or give up 1.38% of portfolio value over 90 days.

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

Carnival  vs.  Melco Resorts Entertainment

Carnival

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, Carnival disclosed solid returns over the last few months and may actually be approaching a breakup point.

Melco Resorts Entert

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melco Resorts Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Carnival and Melco Resorts

The main advantage of trading using opposite Carnival and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carnival 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 Carnival 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.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.