Correlation Between Royal Caribbean and Marriott International

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

Diversification Opportunities for Royal Caribbean and Marriott International

0.94

Correlation Coefficient

Royal Caribbean  Marriott International

Almost no diversification

The 3 months correlation between Royal and Marriott is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and Marriott International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marriott International 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 Marriott International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marriott International has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Marriott International go up and down completely randomly.

Pair Corralation between Royal Caribbean and Marriott International

Considering the 90-day investment horizon Royal Caribbean Cruises is expected to generate 1.36 times more return on investment than Marriott International. However, Royal Caribbean is 1.36 times more volatile than Marriott International. It trades about 0.17 of its potential returns per unit of risk. Marriott International is currently generating about 0.06 per unit of risk. If you would invest  19,945  in Royal Caribbean Cruises on October 21, 2024 and sell it today you would earn a total of  4,236  from holding Royal Caribbean Cruises or generate 21.24% return on investment over 90 days.

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

Royal Caribbean Cruises  vs.  Marriott International

Royal Caribbean Cruises

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Royal Caribbean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Marriott International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Marriott International is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Royal Caribbean and Marriott International

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

The idea behind Royal Caribbean Cruises and Marriott International 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.