Correlation Between Royal Caribbean and Expedia

Can any of the company-specific risk be diversified away by investing in both Royal Caribbean and Expedia 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 Expedia 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 Expedia Group, you can compare the effects of market volatilities on Royal Caribbean and Expedia 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 Expedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Caribbean and Expedia.

Diversification Opportunities for Royal Caribbean and Expedia

0.53

Correlation Coefficient

Royal Caribbean  Expedia

Very weak diversification

The 3 months correlation between Royal and Expedia is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Group and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia Group 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 Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Expedia go up and down completely randomly.

Pair Corralation between Royal Caribbean and Expedia

Assuming the 90 days horizon Royal Caribbean Group is expected to generate 1.2 times more return on investment than Expedia. However, Royal Caribbean is 1.2 times more volatile than Expedia Group. It trades about -0.02 of its potential returns per unit of risk. Expedia Group is currently generating about -0.03 per unit of risk. If you would invest  22,079  in Royal Caribbean Group on December 29, 2024 and sell it today you would lose (1,789) from holding Royal Caribbean Group or give up 8.1% of portfolio value over 90 days.

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

Royal Caribbean Group  vs.  Expedia Group

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Expedia Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Expedia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Royal Caribbean and Expedia

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

The idea behind Royal Caribbean Group and Expedia Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .