Correlation Between Royal Caribbean and HALI34

Can any of the company-specific risk be diversified away by investing in both Royal Caribbean and HALI34 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 HALI34 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 HALI34, you can compare the effects of market volatilities on Royal Caribbean and HALI34 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 HALI34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Caribbean and HALI34.

Diversification Opportunities for Royal Caribbean and HALI34

0.87

Correlation Coefficient

Royal Caribbean  HALI34

Very poor diversification

The 3 months correlation between Royal and HALI34 is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and HALI34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HALI34 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 HALI34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HALI34 has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and HALI34 go up and down completely randomly.

Pair Corralation between Royal Caribbean and HALI34

Assuming the 90 days trading horizon Royal Caribbean Cruises is expected to generate 0.97 times more return on investment than HALI34. However, Royal Caribbean Cruises is 1.03 times less risky than HALI34. It trades about 0.18 of its potential returns per unit of risk. HALI34 is currently generating about -0.01 per unit of risk. If you would invest  29,381  in Royal Caribbean Cruises on September 24, 2024 and sell it today you would earn a total of  43,536  from holding Royal Caribbean Cruises or generate 148.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.2%
Values	Daily Returns

Royal Caribbean Cruises  vs.  HALI34

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.

HALI34

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HALI34 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, HALI34 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royal Caribbean and HALI34

The main advantage of trading using opposite Royal Caribbean and HALI34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Caribbean position performs unexpectedly, HALI34 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 HALI34 will offset losses from the drop in HALI34's long position.

The idea behind Royal Caribbean Cruises and HALI34 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.