Correlation Between Visa and Royal Caribbean

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

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

Diversification Opportunities for Visa and Royal Caribbean

0.84

Correlation Coefficient

Visa  Royal Caribbean

Very poor diversification

The 3 months correlation between Visa and Royal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Royal Caribbean Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Group and Visa 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 Visa Class A 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 Group has no effect on the direction of Visa i.e., Visa and Royal Caribbean go up and down completely randomly.

Pair Corralation between Visa and Royal Caribbean

Taking into account the 90-day investment horizon Visa is expected to generate 3.35 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Visa Class A is 1.95 times less risky than Royal Caribbean. It trades about 0.1 of its potential returns per unit of risk. Royal Caribbean Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  14,193  in Royal Caribbean Group on September 3, 2024 and sell it today you would earn a total of  9,262  from holding Royal Caribbean Group or generate 65.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.9%
Values	Daily Returns

Visa Class A  vs.  Royal Caribbean Group

Visa Class A

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Royal Caribbean Group

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Group are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Royal Caribbean reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Royal Caribbean

The main advantage of trading using opposite Visa and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A and Royal Caribbean Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.