Correlation Between Melco Resorts and MGM Resorts

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

Diversification Opportunities for Melco Resorts and MGM Resorts

0.72

Correlation Coefficient

Melco Resorts  MGM Resorts

Poor diversification

The 3 months correlation between Melco and MGM is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and MGM Resorts International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGM Resorts 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 MGM Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGM Resorts International has no effect on the direction of Melco Resorts i.e., Melco Resorts and MGM Resorts go up and down completely randomly.

Pair Corralation between Melco Resorts and MGM Resorts

Given the investment horizon of 90 days Melco Resorts Entertainment is expected to under-perform the MGM Resorts. In addition to that, Melco Resorts is 1.81 times more volatile than MGM Resorts International. It trades about -0.07 of its total potential returns per unit of risk. MGM Resorts International is currently generating about 0.17 per unit of volatility. If you would invest  3,641  in MGM Resorts International on September 2, 2024 and sell it today you would earn a total of  193.00  from holding MGM Resorts International or generate 5.3% return on investment over 90 days.

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

Melco Resorts Entertainment  vs.  MGM Resorts International

Melco Resorts Entert

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melco Resorts Entertainment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Melco Resorts displayed solid returns over the last few months and may actually be approaching a breakup point.

MGM Resorts International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MGM Resorts International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, MGM Resorts may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Melco Resorts and MGM Resorts

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

The idea behind Melco Resorts Entertainment and MGM Resorts 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.