Correlation Between Block and Royal Caribbean

Can any of the company-specific risk be diversified away by investing in both Block and Royal Caribbean 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 Block and Royal Caribbean into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Block Inc and Royal Caribbean Cruises, you can compare the effects of market volatilities on Block and Royal Caribbean 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 Block with a short position of Royal Caribbean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Block and Royal Caribbean.

Diversification Opportunities for Block and Royal Caribbean

0.97

Correlation Coefficient

Block  Royal Caribbean

Almost no diversification

The 3 months correlation between Block and Royal is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises and Block 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 Block Inc are associated (or correlated) with Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Block i.e., Block and Royal Caribbean go up and down completely randomly.

Pair Corralation between Block and Royal Caribbean

Assuming the 90 days trading horizon Block Inc is expected to generate 1.47 times more return on investment than Royal Caribbean. However, Block is 1.47 times more volatile than Royal Caribbean Cruises. It trades about 0.08 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.11 per unit of risk. If you would invest  2,110  in Block Inc on September 24, 2024 and sell it today you would earn a total of  92.00  from holding Block Inc or generate 4.36% return on investment over 90 days.

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

Block Inc  vs.  Royal Caribbean Cruises

Block Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Block sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Block and Royal Caribbean

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

The idea behind Block Inc and Royal Caribbean Cruises 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.