Correlation Between Royal Caribbean and Madison Square

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

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

Diversification Opportunities for Royal Caribbean and Madison Square

-0.48

Correlation Coefficient

Royal Caribbean  Madison Square

Very good diversification

The 3 months correlation between Royal and Madison is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Group and Madison Square Garden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Square Garden and Royal Caribbean 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 Royal Caribbean Group are associated (or correlated) with Madison Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Square Garden has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Madison Square go up and down completely randomly.

Pair Corralation between Royal Caribbean and Madison Square

Assuming the 90 days horizon Royal Caribbean is expected to generate 1.18 times less return on investment than Madison Square. In addition to that, Royal Caribbean is 1.76 times more volatile than Madison Square Garden. It trades about 0.04 of its total potential returns per unit of risk. Madison Square Garden is currently generating about 0.08 per unit of volatility. If you would invest  16,700  in Madison Square Garden on February 4, 2024 and sell it today you would earn a total of  300.00  from holding Madison Square Garden or generate 1.8% return on investment over 90 days.

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

Royal Caribbean Group  vs.  Madison Square Garden

Royal Caribbean Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Royal Caribbean reported solid returns over the last few months and may actually be approaching a breakup point.

Madison Square Garden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Square Garden has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Madison Square is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Royal Caribbean and Madison Square

The main advantage of trading using opposite Royal Caribbean and Madison Square positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Caribbean position performs unexpectedly, Madison Square 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 Madison Square will offset losses from the drop in Madison Square's long position.

The idea behind Royal Caribbean Group and Madison Square Garden 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..