Correlation Between Mattel and Carnival Plc

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

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

Diversification Opportunities for Mattel and Carnival Plc

-0.24

Correlation Coefficient

Mattel  Carnival Plc

Very good diversification

The 3 months correlation between Mattel and Carnival is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Mattel Inc and Carnival Plc ADS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival Plc ADS and Mattel 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 Mattel Inc are associated (or correlated) with Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival Plc ADS has no effect on the direction of Mattel i.e., Mattel and Carnival Plc go up and down completely randomly.

Pair Corralation between Mattel and Carnival Plc

Considering the 90-day investment horizon Mattel is expected to generate 3.98 times less return on investment than Carnival Plc. But when comparing it to its historical volatility, Mattel Inc is 2.31 times less risky than Carnival Plc. It trades about 0.04 of its potential returns per unit of risk. Carnival Plc ADS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,283  in Carnival Plc ADS on October 20, 2024 and sell it today you would earn a total of  56.00  from holding Carnival Plc ADS or generate 2.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Mattel Inc  vs.  Carnival Plc ADS

Mattel Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mattel Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mattel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Carnival Plc ADS

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival Plc ADS are ranked lower than 12 (%) 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.

Pair Trading with Mattel and Carnival Plc

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

The idea behind Mattel Inc and Carnival Plc ADS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.