Correlation Between Royal Caribbean and LPS Brasil

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

Diversification Opportunities for Royal Caribbean and LPS Brasil

-0.59

Correlation Coefficient

Royal Caribbean  LPS Brasil

Excellent diversification

The 3 months correlation between Royal and LPS is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and LPS Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPS Brasil 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 LPS Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPS Brasil has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and LPS Brasil go up and down completely randomly.

Pair Corralation between Royal Caribbean and LPS Brasil

Assuming the 90 days trading horizon Royal Caribbean Cruises is expected to generate 0.73 times more return on investment than LPS Brasil. However, Royal Caribbean Cruises is 1.37 times less risky than LPS Brasil. It trades about 0.19 of its potential returns per unit of risk. LPS Brasil is currently generating about -0.06 per unit of risk. If you would invest  29,505  in Royal Caribbean Cruises on September 16, 2024 and sell it today you would earn a total of  44,774  from holding Royal Caribbean Cruises or generate 151.75% return on investment over 90 days.

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

Royal Caribbean Cruises  vs.  LPS Brasil

Royal Caribbean Cruises

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 29 (%) 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.

LPS Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LPS Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Royal Caribbean and LPS Brasil

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

The idea behind Royal Caribbean Cruises and LPS Brasil 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.