Correlation Between Select Sector and Royal Caribbean

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

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

Diversification Opportunities for Select Sector and Royal Caribbean

0.31

Correlation Coefficient

Select Sector  Royal Caribbean

Weak diversification

The 3 months correlation between Select and Royal is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector 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 Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and Royal Caribbean go up and down completely randomly.

Pair Corralation between Select Sector and Royal Caribbean

Assuming the 90 days trading horizon Select Sector is expected to generate 4.57 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, The Select Sector is 1.22 times less risky than Royal Caribbean. It trades about 0.04 of its potential returns per unit of risk. Royal Caribbean Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  116,854  in Royal Caribbean Group on October 9, 2024 and sell it today you would earn a total of  350,146  from holding Royal Caribbean Group or generate 299.64% return on investment over 90 days.

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

The Select Sector  vs.  Royal Caribbean Group

Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Royal Caribbean Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Group are ranked lower than 13 (%) 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 Select Sector and Royal Caribbean

The main advantage of trading using opposite Select Sector and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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 The Select Sector 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.