Correlation Between Carnival and TUI AG

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

By analyzing existing cross correlation between Carnival and TUI AG, you can compare the effects of market volatilities on Carnival and TUI AG 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 TUI AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carnival and TUI AG.

Diversification Opportunities for Carnival and TUI AG

0.8

Correlation Coefficient

Carnival  TUI AG

Very poor diversification

The 3 months correlation between Carnival and TUI is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Carnival and TUI AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TUI AG 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 TUI AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TUI AG has no effect on the direction of Carnival i.e., Carnival and TUI AG go up and down completely randomly.

Pair Corralation between Carnival and TUI AG

Considering the 90-day investment horizon Carnival is expected to generate 0.88 times more return on investment than TUI AG. However, Carnival is 1.14 times less risky than TUI AG. It trades about 0.32 of its potential returns per unit of risk. TUI AG is currently generating about 0.09 per unit of risk. If you would invest  1,634  in Carnival on September 3, 2024 and sell it today you would earn a total of  909.00  from holding Carnival or generate 55.63% return on investment over 90 days.

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

Carnival  vs.  TUI AG

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.

TUI AG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TUI AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, TUI AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carnival and TUI AG

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

The idea behind Carnival and TUI AG 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.