Correlation Between Royal Caribbean and Lindblad Expeditions

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

By analyzing existing cross correlation between Royal Caribbean Cruises and Lindblad Expeditions Holdings, you can compare the effects of market volatilities on Royal Caribbean and Lindblad Expeditions 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 Lindblad Expeditions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Caribbean and Lindblad Expeditions.

Diversification Opportunities for Royal Caribbean and Lindblad Expeditions

0.51

Correlation Coefficient

Royal Caribbean  Lindblad Expeditions

Very weak diversification

The 3 months correlation between Royal and Lindblad is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Royal Caribbean Cruises and Lindblad Expeditions Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindblad Expeditions 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 Cruises are associated (or correlated) with Lindblad Expeditions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindblad Expeditions has no effect on the direction of Royal Caribbean i.e., Royal Caribbean and Lindblad Expeditions go up and down completely randomly.

Pair Corralation between Royal Caribbean and Lindblad Expeditions

Considering the 90-day investment horizon Royal Caribbean Cruises is expected to generate 0.55 times more return on investment than Lindblad Expeditions. However, Royal Caribbean Cruises is 1.83 times less risky than Lindblad Expeditions. It trades about 0.18 of its potential returns per unit of risk. Lindblad Expeditions Holdings is currently generating about 0.07 per unit of risk. If you would invest  8,269  in Royal Caribbean Cruises on July 22, 2024 and sell it today you would earn a total of  11,725  from holding Royal Caribbean Cruises or generate 141.79% return on investment over 90 days.

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

Royal Caribbean Cruises  vs.  Lindblad Expeditions Holdings

Royal Caribbean Cruises

Risk-Adjusted Performance

9 of 100

OK

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

Lindblad Expeditions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lindblad Expeditions Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lindblad Expeditions is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Royal Caribbean and Lindblad Expeditions

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

The idea behind Royal Caribbean Cruises and Lindblad Expeditions Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.