Correlation Between Pool and Royal Caribbean

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

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

Diversification Opportunities for Pool and Royal Caribbean

0.38

Correlation Coefficient

Pool  Royal Caribbean

Weak diversification

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

Pair Corralation between Pool and Royal Caribbean

Given the investment horizon of 90 days Pool Corporation is expected to under-perform the Royal Caribbean. But the stock apears to be less risky and, when comparing its historical volatility, Pool Corporation is 1.17 times less risky than Royal Caribbean. The stock trades about -0.2 of its potential returns per unit of risk. The Royal Caribbean Cruises is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  13,627  in Royal Caribbean Cruises on January 25, 2024 and sell it today you would earn a total of  46.00  from holding Royal Caribbean Cruises or generate 0.34% return on investment over 90 days.

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

Pool Corp.  vs.  Royal Caribbean Cruises

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pool is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Royal Caribbean Cruises

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Royal Caribbean may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Pool and Royal Caribbean

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