Correlation Between APA and Royal Caribbean

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

By analyzing existing cross correlation between APA Corporation and Royal Caribbean Cruises, you can compare the effects of market volatilities on APA and Royal Caribbean 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 APA with a short position of Royal Caribbean. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Royal Caribbean.

Diversification Opportunities for APA and Royal Caribbean

-0.41

Correlation Coefficient

APA  Royal Caribbean

Very good diversification

The 3 months correlation between APA and Royal is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises and APA 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 APA Corporation are associated (or correlated) with Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of APA i.e., APA and Royal Caribbean go up and down completely randomly.

Pair Corralation between APA and Royal Caribbean

Assuming the 90 days trading horizon APA Corporation is expected to under-perform the Royal Caribbean. In addition to that, APA is 1.07 times more volatile than Royal Caribbean Cruises. It trades about -0.12 of its total potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.27 per unit of volatility. If you would invest  58,026  in Royal Caribbean Cruises on September 24, 2024 and sell it today you would earn a total of  14,891  from holding Royal Caribbean Cruises or generate 25.66% return on investment over 90 days.

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

APA Corp.  vs.  Royal Caribbean Cruises

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royal Caribbean Cruises

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Royal Caribbean sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with APA and Royal Caribbean

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

The idea behind APA Corporation and Royal Caribbean Cruises 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.