Correlation Between Royal Caribbean and Transocean

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

Diversification Opportunities for Royal Caribbean and Transocean

0.26

Correlation Coefficient

Royal Caribbean  Transocean

Modest diversification

The 3 months correlation between Royal and Transocean is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Transocean go up and down completely randomly.

Pair Corralation between Royal Caribbean and Transocean

Assuming the 90 days trading horizon Royal Caribbean Cruises is expected to generate 0.7 times more return on investment than Transocean. However, Royal Caribbean Cruises is 1.43 times less risky than Transocean. It trades about 0.16 of its potential returns per unit of risk. Transocean is currently generating about 0.01 per unit of risk. If you would invest  13,369  in Royal Caribbean Cruises on September 24, 2024 and sell it today you would earn a total of  59,548  from holding Royal Caribbean Cruises or generate 445.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Royal Caribbean Cruises  vs.  Transocean

Royal Caribbean Cruises

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 24 (%) 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.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Royal Caribbean and Transocean

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

The idea behind Royal Caribbean Cruises and Transocean 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.