Correlation Between Melrose Industries and Boyd Gaming

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

By analyzing existing cross correlation between Melrose Industries PLC and Boyd Gaming, you can compare the effects of market volatilities on Melrose Industries and Boyd Gaming 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 Melrose Industries with a short position of Boyd Gaming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melrose Industries and Boyd Gaming.

Diversification Opportunities for Melrose Industries and Boyd Gaming

0.8

Correlation Coefficient

Melrose Industries  Boyd Gaming

Very poor diversification

The 3 months correlation between Melrose and Boyd is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Melrose Industries PLC and Boyd Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boyd Gaming and Melrose Industries 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 Melrose Industries PLC are associated (or correlated) with Boyd Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boyd Gaming has no effect on the direction of Melrose Industries i.e., Melrose Industries and Boyd Gaming go up and down completely randomly.

Pair Corralation between Melrose Industries and Boyd Gaming

Assuming the 90 days horizon Melrose Industries is expected to generate 2.59 times less return on investment than Boyd Gaming. In addition to that, Melrose Industries is 2.51 times more volatile than Boyd Gaming. It trades about 0.02 of its total potential returns per unit of risk. Boyd Gaming is currently generating about 0.15 per unit of volatility. If you would invest  5,350  in Boyd Gaming on September 27, 2024 and sell it today you would earn a total of  1,865  from holding Boyd Gaming or generate 34.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Melrose Industries PLC  vs.  Boyd Gaming

Melrose Industries PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Boyd Gaming

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boyd Gaming are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Boyd Gaming may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Melrose Industries and Boyd Gaming

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

The idea behind Melrose Industries PLC and Boyd Gaming 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.