Correlation Between Royal Caribbean and Carnival Plc

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Can any of the company-specific risk be diversified away by investing in both Royal Caribbean and Carnival Plc 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 Royal Caribbean and Carnival Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Royal Caribbean Cruises and Carnival plc, you can compare the effects of market volatilities on Royal Caribbean and Carnival Plc 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 Royal Caribbean with a short position of Carnival Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Caribbean and Carnival Plc.

Diversification Opportunities for Royal Caribbean and Carnival Plc

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Royal and Carnival is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and Carnival plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival plc and Royal Caribbean 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 Royal Caribbean Cruises are associated (or correlated) with Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival plc has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Carnival Plc go up and down completely randomly.

Pair Corralation between Royal Caribbean and Carnival Plc

Assuming the 90 days trading horizon Royal Caribbean is expected to generate 1.12 times less return on investment than Carnival Plc. But when comparing it to its historical volatility, Royal Caribbean Cruises is 1.32 times less risky than Carnival Plc. It trades about 0.32 of its potential returns per unit of risk. Carnival plc is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  10,432  in Carnival plc on September 23, 2024 and sell it today you would earn a total of  5,894  from holding Carnival plc or generate 56.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Royal Caribbean Cruises  vs.  Carnival plc

 Performance 
       Timeline  
Royal Caribbean Cruises 

Risk-Adjusted Performance

25 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 25 (%) 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.
Carnival plc 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Carnival plc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Carnival Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Royal Caribbean and Carnival Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Royal Caribbean and Carnival Plc

The main advantage of trading using opposite Royal Caribbean and Carnival Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Caribbean position performs unexpectedly, Carnival Plc 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 Carnival Plc will offset losses from the drop in Carnival Plc's long position.
The idea behind Royal Caribbean Cruises and Carnival plc 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 CEOs Directory module to screen CEOs from public companies around the world.

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