Correlation Between Royal Caribbean and New Momentum

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

Diversification Opportunities for Royal Caribbean and New Momentum

-0.59

Correlation Coefficient

Royal Caribbean  New Momentum

Excellent diversification

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

Pair Corralation between Royal Caribbean and New Momentum

Considering the 90-day investment horizon Royal Caribbean Cruises is expected to generate 0.19 times more return on investment than New Momentum. However, Royal Caribbean Cruises is 5.37 times less risky than New Momentum. It trades about 0.15 of its potential returns per unit of risk. New Momentum is currently generating about 0.01 per unit of risk. If you would invest  15,588  in Royal Caribbean Cruises on September 30, 2024 and sell it today you would earn a total of  7,683  from holding Royal Caribbean Cruises or generate 49.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Royal Caribbean Cruises  vs.  New Momentum

Royal Caribbean Cruises

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 17 (%) 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.

New Momentum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Momentum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, New Momentum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Caribbean and New Momentum

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

The idea behind Royal Caribbean Cruises and New Momentum 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.