Correlation Between Biglari Holdings and Royal Caribbean

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

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

Diversification Opportunities for Biglari Holdings and Royal Caribbean

0.37

Correlation Coefficient

Biglari Holdings  Royal Caribbean

Weak diversification

The 3 months correlation between Biglari and Royal is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings i.e., Biglari Holdings and Royal Caribbean go up and down completely randomly.

Pair Corralation between Biglari Holdings and Royal Caribbean

Allowing for the 90-day total investment horizon Biglari Holdings is expected to under-perform the Royal Caribbean. But the stock apears to be less risky and, when comparing its historical volatility, Biglari Holdings is 1.22 times less risky than Royal Caribbean. The stock trades about -0.12 of its potential returns per unit of risk. The Royal Caribbean Cruises is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  23,194  in Royal Caribbean Cruises on December 28, 2024 and sell it today you would lose (1,470) from holding Royal Caribbean Cruises or give up 6.34% of portfolio value over 90 days.

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

Biglari Holdings  vs.  Royal Caribbean Cruises

Biglari Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biglari Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Royal Caribbean Cruises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Caribbean Cruises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Royal Caribbean is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Biglari Holdings and Royal Caribbean

The main advantage of trading using opposite Biglari Holdings and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biglari Holdings 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 Biglari Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.