Correlation Between Verizon Communications and Royal Caribbean

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

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

Diversification Opportunities for Verizon Communications and Royal Caribbean

0.38

Correlation Coefficient

Verizon Communications  Royal Caribbean

Weak diversification

The 3 months correlation between Verizon and Royal is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications 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 Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and Royal Caribbean go up and down completely randomly.

Pair Corralation between Verizon Communications and Royal Caribbean

Assuming the 90 days horizon Verizon Communications is expected to generate 6.46 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Verizon Communications is 1.24 times less risky than Royal Caribbean. It trades about 0.03 of its potential returns per unit of risk. Royal Caribbean Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  129,694  in Royal Caribbean Group on October 25, 2024 and sell it today you would earn a total of  363,535  from holding Royal Caribbean Group or generate 280.3% return on investment over 90 days.

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

Verizon Communications  vs.  Royal Caribbean Group

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Royal Caribbean Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Royal Caribbean showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Royal Caribbean

The main advantage of trading using opposite Verizon Communications and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications 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.

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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.