Correlation Between Bank of America and Royal Caribbean
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America 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 Bank of America 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 Bank of America with a short position of Royal Caribbean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Royal Caribbean.
Diversification Opportunities for Bank of America and Royal Caribbean
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Royal is 0.47. 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 Bank of America 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 Bank of America i.e., Bank of America and Royal Caribbean go up and down completely randomly.
Pair Corralation between Bank of America and Royal Caribbean
Assuming the 90 days trading horizon Bank of America is expected to generate 2.07 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Verizon Communications is 2.43 times less risky than Royal Caribbean. It trades about 0.5 of its potential returns per unit of risk. Royal Caribbean Group is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 18,608 in Royal Caribbean Group on September 3, 2024 and sell it today you would earn a total of 4,362 from holding Royal Caribbean Group or generate 23.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Royal Caribbean Group
Performance |
| Timeline |
| Verizon Communications |
| Royal Caribbean Group |
Bank of America and Royal Caribbean Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Royal Caribbean
The main advantage of trading using opposite Bank of America and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. CAL MAINE FOODS | Bank of America vs. GEELY AUTOMOBILE | Bank of America vs. Nomad Foods | Bank of America vs. NISSIN FOODS HLDGS |
| Royal Caribbean vs. Li Ning Company | Royal Caribbean vs. SHIMANO INC UNSPADR10 | Royal Caribbean vs. Superior Plus Corp | Royal Caribbean vs. NMI Holdings |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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