Correlation Between Studio City and Melco Resorts

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

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

Diversification Opportunities for Studio City and Melco Resorts

0.67

Correlation Coefficient

Studio City  Melco Resorts

Poor diversification

The 3 months correlation between Studio and Melco is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Studio City 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 Studio City 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 Studio City 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 Studio City i.e., Studio City and Melco Resorts go up and down completely randomly.

Pair Corralation between Studio City and Melco Resorts

Considering the 90-day investment horizon Studio City International is expected to under-perform the Melco Resorts. In addition to that, Studio City is 1.67 times more volatile than Melco Resorts Entertainment. It trades about -0.17 of its total potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.06 per unit of volatility. If you would invest  642.00  in Melco Resorts Entertainment on November 29, 2024 and sell it today you would lose (80.50) from holding Melco Resorts Entertainment or give up 12.54% of portfolio value over 90 days.

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

Studio City International  vs.  Melco Resorts Entertainment

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 March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Studio City and Melco Resorts

The main advantage of trading using opposite Studio City and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Studio City 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 Studio City 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.