Correlation Between MGM Resorts and Melco Crown

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

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

Diversification Opportunities for MGM Resorts and Melco Crown

0.0

Correlation Coefficient

MGM Resorts  Melco Crown

Pay attention - limited upside

The 3 months correlation between MGM and Melco is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding MGM Resorts International and Melco Crown Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melco Crown Entertainment and MGM 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 MGM Resorts International are associated (or correlated) with Melco Crown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melco Crown Entertainment has no effect on the direction of MGM Resorts i.e., MGM Resorts and Melco Crown go up and down completely randomly.

Pair Corralation between MGM Resorts and Melco Crown

If you would invest (100.00) in Melco Crown Entertainment on January 31, 2024 and sell it today you would earn a total of  100.00  from holding Melco Crown Entertainment or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

MGM Resorts International  vs.  Melco Crown Entertainment

MGM Resorts International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGM Resorts International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, MGM Resorts is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Melco Crown Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melco Crown Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Melco Crown is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MGM Resorts and Melco Crown

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

The idea behind MGM Resorts International and Melco Crown 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.