Correlation Between Expedia and Royal Caribbean

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

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

Diversification Opportunities for Expedia and Royal Caribbean

0.98

Correlation Coefficient

Expedia  Royal Caribbean

Almost no diversification

The 3 months correlation between Expedia and Royal is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Expedia Group 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 Expedia 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 Expedia Group 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 Expedia i.e., Expedia and Royal Caribbean go up and down completely randomly.

Pair Corralation between Expedia and Royal Caribbean

Given the investment horizon of 90 days Expedia is expected to generate 1.38 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Expedia Group is 1.19 times less risky than Royal Caribbean. It trades about 0.31 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  15,928  in Royal Caribbean Cruises on August 31, 2024 and sell it today you would earn a total of  8,234  from holding Royal Caribbean Cruises or generate 51.7% return on investment over 90 days.

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

Expedia Group  vs.  Royal Caribbean Cruises

Expedia Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Expedia exhibited 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 Expedia and Royal Caribbean

The main advantage of trading using opposite Expedia and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Expedia 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 Expedia Group 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.