Correlation Between Carnival and Despegar Corp

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

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

Diversification Opportunities for Carnival and Despegar Corp

0.17

Correlation Coefficient

Carnival  Despegar Corp

Average diversification

The 3 months correlation between Carnival and Despegar is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Carnival and Despegar Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Despegar Corp and Carnival 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 Carnival are associated (or correlated) with Despegar Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Despegar Corp has no effect on the direction of Carnival i.e., Carnival and Despegar Corp go up and down completely randomly.

Pair Corralation between Carnival and Despegar Corp

Considering the 90-day investment horizon Carnival is expected to under-perform the Despegar Corp. In addition to that, Carnival is 6.05 times more volatile than Despegar Corp. It trades about -0.12 of its total potential returns per unit of risk. Despegar Corp is currently generating about -0.14 per unit of volatility. If you would invest  1,928  in Despegar Corp on December 29, 2024 and sell it today you would lose (77.00) from holding Despegar Corp or give up 3.99% of portfolio value over 90 days.

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

Carnival  vs.  Despegar Corp

Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Despegar Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Despegar Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Despegar Corp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Carnival and Despegar Corp

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

The idea behind Carnival and Despegar Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.