Correlation Between Royal Caribbean and Carnival

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

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

Diversification Opportunities for Royal Caribbean and Carnival

0.73

Correlation Coefficient

Royal Caribbean  Carnival

Poor diversification

The 3 months correlation between Royal and Carnival is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival 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 Cruises are associated (or correlated) with Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Carnival go up and down completely randomly.

Pair Corralation between Royal Caribbean and Carnival

Considering the 90-day investment horizon Royal Caribbean Cruises is expected to generate 1.09 times more return on investment than Carnival. However, Royal Caribbean is 1.09 times more volatile than Carnival. It trades about -0.02 of its potential returns per unit of risk. Carnival is currently generating about -0.1 per unit of risk. If you would invest  23,194  in Royal Caribbean Cruises on December 29, 2024 and sell it today you would lose (1,470) from holding Royal Caribbean Cruises or give up 6.34% of portfolio value over 90 days.

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

Royal Caribbean Cruises  vs.  Carnival

Royal Caribbean Cruises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Caribbean Cruises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Royal Caribbean is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Royal Caribbean and Carnival

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

The idea behind Royal Caribbean Cruises and Carnival 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 Transaction History module to view history of all your transactions and understand their impact on performance.