Correlation Between Royal Caribbean and Expedia

Can any of the company-specific risk be diversified away by investing in both Royal Caribbean and Expedia 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 Expedia 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 Expedia Group, you can compare the effects of market volatilities on Royal Caribbean and Expedia 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 Expedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Caribbean and Expedia.

Diversification Opportunities for Royal Caribbean and Expedia

0.99

Correlation Coefficient

Royal Caribbean  Expedia

No risk reduction

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

Pair Corralation between Royal Caribbean and Expedia

Assuming the 90 days trading horizon Royal Caribbean is expected to generate 1.01 times less return on investment than Expedia. But when comparing it to its historical volatility, Royal Caribbean Cruises is 1.24 times less risky than Expedia. It trades about 0.32 of its potential returns per unit of risk. Expedia Group is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  37,550  in Expedia Group on September 23, 2024 and sell it today you would earn a total of  18,760  from holding Expedia Group or generate 49.96% return on investment over 90 days.

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

Royal Caribbean Cruises  vs.  Expedia Group

Royal Caribbean Cruises

Risk-Adjusted Performance

25 of 100

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.

Expedia Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Expedia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Caribbean and Expedia

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

The idea behind Royal Caribbean Cruises and Expedia Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.