Correlation Between FAT Brands and Melco Resorts

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

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

Diversification Opportunities for FAT Brands and Melco Resorts

-0.8

Correlation Coefficient

FAT Brands  Melco Resorts

Pay attention - limited upside

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

Pair Corralation between FAT Brands and Melco Resorts

Considering the 90-day investment horizon FAT Brands is expected to generate 0.7 times more return on investment than Melco Resorts. However, FAT Brands is 1.43 times less risky than Melco Resorts. It trades about -0.05 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  547.00  in FAT Brands on September 29, 2024 and sell it today you would lose (10.00) from holding FAT Brands or give up 1.83% of portfolio value over 90 days.

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

FAT Brands  vs.  Melco Resorts Entertainment

FAT Brands

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 FAT Brands and Melco Resorts

The main advantage of trading using opposite FAT Brands and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FAT Brands 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 FAT Brands 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.