Correlation Between MGM China and Golden Entertainment

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

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

Diversification Opportunities for MGM China and Golden Entertainment

0.08

Correlation Coefficient

MGM China  Golden Entertainment

Significant diversification

The 3 months correlation between MGM and Golden is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding MGM China Holdings and Golden Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Entertainment and MGM China 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 MGM China Holdings are associated (or correlated) with Golden Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Entertainment has no effect on the direction of MGM China i.e., MGM China and Golden Entertainment go up and down completely randomly.

Pair Corralation between MGM China and Golden Entertainment

Assuming the 90 days horizon MGM China Holdings is expected to generate 3.76 times more return on investment than Golden Entertainment. However, MGM China is 3.76 times more volatile than Golden Entertainment. It trades about 0.13 of its potential returns per unit of risk. Golden Entertainment is currently generating about -0.11 per unit of risk. If you would invest  105.00  in MGM China Holdings on December 4, 2024 and sell it today you would earn a total of  14.00  from holding MGM China Holdings or generate 13.33% return on investment over 90 days.

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

MGM China Holdings  vs.  Golden Entertainment

MGM China Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MGM China Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MGM China reported solid returns over the last few months and may actually be approaching a breakup point.

Golden Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Golden Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MGM China and Golden Entertainment

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

The idea behind MGM China Holdings and Golden 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.