Correlation Between Trip Group and Royal Caribbean

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

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

Diversification Opportunities for Trip Group and Royal Caribbean

0.45

Correlation Coefficient

Trip Group  Royal Caribbean

Very weak diversification

The 3 months correlation between Trip and Royal is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Trip Group Ltd and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises and Trip Group 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 Trip Group Ltd are associated (or correlated) with Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Trip Group i.e., Trip Group and Royal Caribbean go up and down completely randomly.

Pair Corralation between Trip Group and Royal Caribbean

Given the investment horizon of 90 days Trip Group Ltd is expected to under-perform the Royal Caribbean. In addition to that, Trip Group is 1.01 times more volatile than Royal Caribbean Cruises. It trades about -0.04 of its total potential returns per unit of risk. Royal Caribbean Cruises is currently generating about -0.01 per unit of volatility. If you would invest  23,190  in Royal Caribbean Cruises on December 27, 2024 and sell it today you would lose (1,204) from holding Royal Caribbean Cruises or give up 5.19% of portfolio value over 90 days.

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

Trip Group Ltd  vs.  Royal Caribbean Cruises

Trip Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trip Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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.

Pair Trading with Trip Group and Royal Caribbean

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

The idea behind Trip Group Ltd and Royal Caribbean Cruises 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 .