Correlation Between Carnival and Royal Caribbean

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

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

Diversification Opportunities for Carnival and Royal Caribbean

0.99

Correlation Coefficient

Carnival  Royal Caribbean

No risk reduction

The 3 months correlation between Carnival and Royal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Carnival 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 Carnival 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 Carnival 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 Carnival i.e., Carnival and Royal Caribbean go up and down completely randomly.

Pair Corralation between Carnival and Royal Caribbean

Considering the 90-day investment horizon Carnival is expected to generate 1.21 times more return on investment than Royal Caribbean. However, Carnival is 1.21 times more volatile than Royal Caribbean Cruises. It trades about 0.31 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.36 per unit of risk. If you would invest  1,634  in Carnival on August 31, 2024 and sell it today you would earn a total of  880.00  from holding Carnival or generate 53.86% return on investment over 90 days.

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

Carnival  vs.  Royal Caribbean Cruises

Carnival

Risk-Adjusted Performance

24 of 100

Solid

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

Royal Caribbean Cruises

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Royal Caribbean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carnival and Royal Caribbean

The main advantage of trading using opposite Carnival and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carnival 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 Carnival 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.