Correlation Between Microsoft and Melco Resorts
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Melco Resorts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Melco Resorts Entertainment, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Melco Resorts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Melco Resorts.
Diversification Opportunities for Microsoft and Melco Resorts
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Melco is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Melco Resorts go up and down completely randomly.
Pair Corralation between Microsoft and Melco Resorts
Given the investment horizon of 90 days Microsoft is expected to under-perform the Melco Resorts. In addition to that, Microsoft is 2.52 times more volatile than Melco Resorts Entertainment. It trades about -0.09 of its total potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.17 per unit of volatility. If you would invest 1,772 in Melco Resorts Entertainment on November 5, 2024 and sell it today you would lose (55.00) from holding Melco Resorts Entertainment or give up 3.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Microsoft vs. Melco Resorts Entertainment
Performance |
| Timeline |
| Microsoft |
| Melco Resorts Entert |
Microsoft and Melco Resorts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Melco Resorts
The main advantage of trading using opposite Microsoft and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Melco Resorts vs. Monster Beverage | Melco Resorts vs. STMicroelectronics NV | Melco Resorts vs. SVB Financial Group | Melco Resorts vs. Synchrony Financial |
Check out your portfolio center.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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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