Correlation Between Red Rock and MGM China

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

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

Diversification Opportunities for Red Rock and MGM China

0.35

Correlation Coefficient

Red Rock  MGM China

Weak diversification

The 3 months correlation between Red and MGM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Red Rock Resorts and MGM China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGM China Holdings and Red Rock 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 Red Rock Resorts are associated (or correlated) with MGM China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGM China Holdings has no effect on the direction of Red Rock i.e., Red Rock and MGM China go up and down completely randomly.

Pair Corralation between Red Rock and MGM China

Considering the 90-day investment horizon Red Rock Resorts is expected to generate 0.31 times more return on investment than MGM China. However, Red Rock Resorts is 3.26 times less risky than MGM China. It trades about -0.07 of its potential returns per unit of risk. MGM China Holdings is currently generating about -0.22 per unit of risk. If you would invest  5,128  in Red Rock Resorts on September 14, 2024 and sell it today you would lose (133.00) from holding Red Rock Resorts or give up 2.59% of portfolio value over 90 days.

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

Red Rock Resorts  vs.  MGM China Holdings

Red Rock Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Rock Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Red Rock is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

MGM China Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MGM China Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MGM China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Red Rock and MGM China

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

The idea behind Red Rock Resorts and MGM China Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.