Correlation Between Melco Resorts and Merck

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

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

Diversification Opportunities for Melco Resorts and Merck

0.38

Correlation Coefficient

Melco Resorts  Merck

Weak diversification

The 3 months correlation between Melco and Merck is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Melco Resorts 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 Melco Resorts Entertainment are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck has no effect on the direction of Melco Resorts i.e., Melco Resorts and Merck go up and down completely randomly.

Pair Corralation between Melco Resorts and Merck

Assuming the 90 days trading horizon Melco Resorts Entertainment is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Melco Resorts Entertainment is 1.49 times less risky than Merck. The stock trades about -0.45 of its potential returns per unit of risk. The Merck Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,573  in Merck Co on October 11, 2024 and sell it today you would earn a total of  67.00  from holding Merck Co or generate 0.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Melco Resorts Entertainment  vs.  Merck Co

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. 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.

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Melco Resorts and Merck

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

The idea behind Melco Resorts Entertainment and Merck Co 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.