Correlation Between NVIDIA and Royal Caribbean

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

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

Diversification Opportunities for NVIDIA and Royal Caribbean

0.36

Correlation Coefficient

NVIDIA  Royal Caribbean

Weak diversification

The 3 months correlation between NVIDIA and Royal is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA 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 NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and Royal Caribbean go up and down completely randomly.

Pair Corralation between NVIDIA and Royal Caribbean

Given the investment horizon of 90 days NVIDIA is expected to generate 0.97 times more return on investment than Royal Caribbean. However, NVIDIA is 1.03 times less risky than Royal Caribbean. It trades about -0.11 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about -0.15 per unit of risk. If you would invest  14,513  in NVIDIA on October 5, 2024 and sell it today you would lose (682.00) from holding NVIDIA or give up 4.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

NVIDIA  vs.  Royal Caribbean Cruises

NVIDIA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Royal Caribbean Cruises

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 23 (%) 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 NVIDIA and Royal Caribbean

The main advantage of trading using opposite NVIDIA and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.