Correlation Between Melco Resorts and Wynn Resorts

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

Diversification Opportunities for Melco Resorts and Wynn Resorts

0.89

Correlation Coefficient

Melco Resorts  Wynn Resorts

Very poor diversification

The 3 months correlation between Melco and Wynn is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and Wynn Resorts Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wynn Resorts Limited 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 Wynn Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wynn Resorts Limited has no effect on the direction of Melco Resorts i.e., Melco Resorts and Wynn Resorts go up and down completely randomly.

Pair Corralation between Melco Resorts and Wynn Resorts

Given the investment horizon of 90 days Melco Resorts Entertainment is expected to generate 1.28 times more return on investment than Wynn Resorts. However, Melco Resorts is 1.28 times more volatile than Wynn Resorts Limited. It trades about 0.09 of its potential returns per unit of risk. Wynn Resorts Limited is currently generating about 0.12 per unit of risk. If you would invest  507.00  in Melco Resorts Entertainment on August 30, 2024 and sell it today you would earn a total of  91.00  from holding Melco Resorts Entertainment or generate 17.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Melco Resorts Entertainment  vs.  Wynn Resorts Limited

Melco Resorts Entert

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melco Resorts Entertainment are ranked lower than 7 (%) 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.

Wynn Resorts Limited

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Melco Resorts and Wynn Resorts

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

The idea behind Melco Resorts Entertainment and Wynn Resorts Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.