Correlation Between Melco Resorts and DraftKings

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

Diversification Opportunities for Melco Resorts and DraftKings

-0.39

Correlation Coefficient

Melco Resorts  DraftKings

Very good diversification

The 3 months correlation between Melco and DraftKings is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Melco Resorts Entertainment and DraftKings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DraftKings 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 DraftKings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DraftKings has no effect on the direction of Melco Resorts i.e., Melco Resorts and DraftKings go up and down completely randomly.

Pair Corralation between Melco Resorts and DraftKings

Given the investment horizon of 90 days Melco Resorts Entertainment is expected to under-perform the DraftKings. But the stock apears to be less risky and, when comparing its historical volatility, Melco Resorts Entertainment is 1.03 times less risky than DraftKings. The stock trades about -0.17 of its potential returns per unit of risk. The DraftKings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,352  in DraftKings on January 18, 2024 and sell it today you would earn a total of  142.00  from holding DraftKings or generate 3.26% return on investment over 90 days.

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

Melco Resorts Entertainment  vs.  DraftKings

Melco Resorts Entert

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melco Resorts Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

DraftKings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DraftKings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, DraftKings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Melco Resorts and DraftKings

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

The idea behind Melco Resorts Entertainment and DraftKings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.