Correlation Between Carnival Plc and Sportsquest

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

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

Diversification Opportunities for Carnival Plc and Sportsquest

-0.68

Correlation Coefficient

Carnival Plc  Sportsquest

Excellent diversification

The 3 months correlation between Carnival and Sportsquest is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Carnival Plc ADS and Sportsquest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sportsquest and Carnival Plc 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 Plc ADS are associated (or correlated) with Sportsquest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sportsquest has no effect on the direction of Carnival Plc i.e., Carnival Plc and Sportsquest go up and down completely randomly.

Pair Corralation between Carnival Plc and Sportsquest

Considering the 90-day investment horizon Carnival Plc is expected to generate 1.44 times less return on investment than Sportsquest. But when comparing it to its historical volatility, Carnival Plc ADS is 10.4 times less risky than Sportsquest. It trades about 0.27 of its potential returns per unit of risk. Sportsquest is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.07  in Sportsquest on September 15, 2024 and sell it today you would lose (0.05) from holding Sportsquest or give up 71.43% of portfolio value over 90 days.

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

Carnival Plc ADS  vs.  Sportsquest

Carnival Plc ADS

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival Plc ADS are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Carnival Plc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Sportsquest

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sportsquest are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Sportsquest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carnival Plc and Sportsquest

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

The idea behind Carnival Plc ADS and Sportsquest 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.