Correlation Between Melco Resorts and Playa Hotels

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

Diversification Opportunities for Melco Resorts and Playa Hotels

-0.32

Correlation Coefficient

Melco Resorts  Playa Hotels

Very good diversification

The 3 months correlation between Melco and Playa is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts 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 Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of Melco Resorts i.e., Melco Resorts and Playa Hotels go up and down completely randomly.

Pair Corralation between Melco Resorts and Playa Hotels

Given the investment horizon of 90 days Melco Resorts Entertainment is expected to under-perform the Playa Hotels. In addition to that, Melco Resorts is 2.92 times more volatile than Playa Hotels Resorts. It trades about -0.01 of its total potential returns per unit of risk. Playa Hotels Resorts is currently generating about 0.13 per unit of volatility. If you would invest  1,237  in Playa Hotels Resorts on December 28, 2024 and sell it today you would earn a total of  96.00  from holding Playa Hotels Resorts or generate 7.76% return on investment over 90 days.

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

Melco Resorts Entertainment  vs.  Playa Hotels Resorts

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.

Playa Hotels Resorts

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Melco Resorts and Playa Hotels

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

The idea behind Melco Resorts Entertainment and Playa Hotels Resorts 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.