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

0.8

Correlation Coefficient

Studio City  Melco Resorts

Very poor diversification

The 3 months correlation between Studio and Melco is 0.8. 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 generate 1.65 times more return on investment than Melco Resorts. However, Studio City is 1.65 times more volatile than Melco Resorts Entertainment. It trades about 0.03 of its potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.02 per unit of risk. If you would invest  552.00  in Studio City International on August 31, 2024 and sell it today you would earn a total of  97.00  from holding Studio City International or generate 17.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Studio City International  vs.  Melco Resorts Entertainment

Studio City International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Studio City International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Studio City exhibited solid returns over the last few months and may actually be approaching a breakup point.

Melco Resorts Entert

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melco Resorts Entertainment are ranked lower than 8 (%) 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.