Correlation Between MGM Resorts and Melco Resorts

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

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

Diversification Opportunities for MGM Resorts and Melco Resorts

0.5

Correlation Coefficient

MGM Resorts  Melco Resorts

Very weak diversification

The 3 months correlation between MGM and Melco is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding MGM Resorts International 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 MGM 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 MGM Resorts International 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 MGM Resorts i.e., MGM Resorts and Melco Resorts go up and down completely randomly.

Pair Corralation between MGM Resorts and Melco Resorts

Considering the 90-day investment horizon MGM Resorts International is expected to generate 1.02 times more return on investment than Melco Resorts. However, MGM Resorts is 1.02 times more volatile than Melco Resorts Entertainment. It trades about -0.03 of its potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.04 per unit of risk. If you would invest  3,477  in MGM Resorts International on December 27, 2024 and sell it today you would lose (265.00) from holding MGM Resorts International or give up 7.62% of portfolio value over 90 days.

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

MGM Resorts International  vs.  Melco Resorts Entertainment

MGM Resorts International

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGM Resorts International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, MGM Resorts is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Melco Resorts Entert

Risk-Adjusted Performance

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 latest unfluctuating performance, the Stock's 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 Resorts and Melco Resorts

The main advantage of trading using opposite MGM Resorts and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGM Resorts 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 MGM Resorts International 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.