Correlation Between Royal Caribbean and Best Buy

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

Diversification Opportunities for Royal Caribbean and Best Buy

0.28

Correlation Coefficient

Royal Caribbean  Best Buy

Modest diversification

The 3 months correlation between Royal and Best is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Group and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Best Buy go up and down completely randomly.

Pair Corralation between Royal Caribbean and Best Buy

Assuming the 90 days trading horizon Royal Caribbean Group is expected to generate 1.68 times more return on investment than Best Buy. However, Royal Caribbean is 1.68 times more volatile than Best Buy Co. It trades about -0.05 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.16 per unit of risk. If you would invest  478,336  in Royal Caribbean Group on December 29, 2024 and sell it today you would lose (54,336) from holding Royal Caribbean Group or give up 11.36% of portfolio value over 90 days.

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

Royal Caribbean Group  vs.  Best Buy Co

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. In spite of latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Best Buy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Royal Caribbean and Best Buy

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

The idea behind Royal Caribbean Group and Best Buy Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.