Correlation Between GP Investments and Royal Caribbean

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

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

Diversification Opportunities for GP Investments and Royal Caribbean

0.26

Correlation Coefficient

GP Investments  Royal Caribbean

Modest diversification

The 3 months correlation between GPIV33 and Royal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding GP Investments 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 GP Investments 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 GP Investments 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 GP Investments i.e., GP Investments and Royal Caribbean go up and down completely randomly.

Pair Corralation between GP Investments and Royal Caribbean

Assuming the 90 days trading horizon GP Investments is expected to generate 3.21 times less return on investment than Royal Caribbean. In addition to that, GP Investments is 1.55 times more volatile than Royal Caribbean Cruises. It trades about 0.04 of its total potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.17 per unit of volatility. If you would invest  57,018  in Royal Caribbean Cruises on October 25, 2024 and sell it today you would earn a total of  13,150  from holding Royal Caribbean Cruises or generate 23.06% return on investment over 90 days.

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

GP Investments  vs.  Royal Caribbean Cruises

GP Investments

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GP Investments are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, GP Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Royal Caribbean Cruises

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 13 (%) 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 GP Investments and Royal Caribbean

The main advantage of trading using opposite GP Investments and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GP Investments 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 GP Investments 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.