Correlation Between Raytheon Technologies and Carnival Plc

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

By analyzing existing cross correlation between Raytheon Technologies and Carnival plc, you can compare the effects of market volatilities on Raytheon Technologies and Carnival Plc 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 Raytheon Technologies with a short position of Carnival Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Carnival Plc.

Diversification Opportunities for Raytheon Technologies and Carnival Plc

0.33

Correlation Coefficient

Raytheon Technologies  Carnival Plc

Weak diversification

The 3 months correlation between Raytheon and Carnival is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Carnival plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival plc and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival plc has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and Carnival Plc go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Carnival Plc

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 8.25 times less return on investment than Carnival Plc. But when comparing it to its historical volatility, Raytheon Technologies is 1.56 times less risky than Carnival Plc. It trades about 0.04 of its potential returns per unit of risk. Carnival plc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  12,210  in Carnival plc on October 22, 2024 and sell it today you would earn a total of  3,484  from holding Carnival plc or generate 28.53% return on investment over 90 days.

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

Raytheon Technologies  vs.  Carnival plc

Raytheon Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Raytheon Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Carnival plc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Carnival Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Raytheon Technologies and Carnival Plc

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

The idea behind Raytheon Technologies and Carnival plc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.