Correlation Between Waste Management and Royal Caribbean

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

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

Diversification Opportunities for Waste Management and Royal Caribbean

-0.04

Correlation Coefficient

Waste Management  Royal Caribbean

Good diversification

The 3 months correlation between Waste and Royal is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management 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 Waste Management 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 Waste Management 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 Waste Management i.e., Waste Management and Royal Caribbean go up and down completely randomly.

Pair Corralation between Waste Management and Royal Caribbean

Assuming the 90 days trading horizon Waste Management is expected to generate 0.32 times more return on investment than Royal Caribbean. However, Waste Management is 3.14 times less risky than Royal Caribbean. It trades about 0.03 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about -0.07 per unit of risk. If you would invest  63,338  in Waste Management on December 24, 2024 and sell it today you would earn a total of  925.00  from holding Waste Management or generate 1.46% return on investment over 90 days.

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

Waste Management  vs.  Royal Caribbean Cruises

Waste Management

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Waste Management is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Waste Management and Royal Caribbean

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

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.