Correlation Between Melco Resorts and Studio City

Can any of the company-specific risk be diversified away by investing in both Melco Resorts and Studio City 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 Studio City 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 Studio City International, you can compare the effects of market volatilities on Melco Resorts and Studio City 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 Studio City. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melco Resorts and Studio City.

Diversification Opportunities for Melco Resorts and Studio City

0.29

Correlation Coefficient

Melco Resorts  Studio City

Modest diversification

The 3 months correlation between Melco and Studio is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and Studio City International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Studio City International 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 Studio City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Studio City International has no effect on the direction of Melco Resorts i.e., Melco Resorts and Studio City go up and down completely randomly.

Pair Corralation between Melco Resorts and Studio City

Given the investment horizon of 90 days Melco Resorts Entertainment is expected to generate 0.43 times more return on investment than Studio City. However, Melco Resorts Entertainment is 2.31 times less risky than Studio City. It trades about -0.01 of its potential returns per unit of risk. Studio City International is currently generating about -0.08 per unit of risk. If you would invest  560.00  in Melco Resorts Entertainment on December 28, 2024 and sell it today you would lose (20.00) from holding Melco Resorts Entertainment or give up 3.57% of portfolio value over 90 days.

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

Melco Resorts Entertainment  vs.  Studio City International

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 very healthy fundamental indicators, Melco Resorts is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Studio City International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Studio City International 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 basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Melco Resorts and Studio City

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

The idea behind Melco Resorts Entertainment and Studio City International 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.