Correlation Between Royal Caribbean and Hanover Insurance

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

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

Diversification Opportunities for Royal Caribbean and Hanover Insurance

0.43

Correlation Coefficient

Royal Caribbean  Hanover Insurance

Very weak diversification

The 3 months correlation between Royal and Hanover is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Group and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Royal Caribbean 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 Royal Caribbean Group are associated (or correlated) with Hanover Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanover Insurance has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Hanover Insurance go up and down completely randomly.

Pair Corralation between Royal Caribbean and Hanover Insurance

Assuming the 90 days horizon Royal Caribbean Group is expected to generate 1.53 times more return on investment than Hanover Insurance. However, Royal Caribbean is 1.53 times more volatile than The Hanover Insurance. It trades about 0.13 of its potential returns per unit of risk. The Hanover Insurance is currently generating about 0.06 per unit of risk. If you would invest  5,877  in Royal Caribbean Group on December 4, 2024 and sell it today you would earn a total of  17,208  from holding Royal Caribbean Group or generate 292.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Royal Caribbean Group  vs.  The Hanover Insurance

Royal Caribbean Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Caribbean Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Royal Caribbean is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Hanover Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hanover Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Royal Caribbean and Hanover Insurance

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

The idea behind Royal Caribbean Group and The Hanover Insurance 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.