Correlation Between Norwegian Cruise and Royal Caribbean
Can any of the company-specific risk be diversified away by investing in both Norwegian Cruise 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 Norwegian Cruise and Royal Caribbean into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norwegian Cruise Line and Royal Caribbean Cruises, you can compare the effects of market volatilities on Norwegian Cruise 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 Norwegian Cruise with a short position of Royal Caribbean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Cruise and Royal Caribbean.
Diversification Opportunities for Norwegian Cruise and Royal Caribbean
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Norwegian and Royal is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Cruise Line 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 Norwegian Cruise 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 Norwegian Cruise Line 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 Norwegian Cruise i.e., Norwegian Cruise and Royal Caribbean go up and down completely randomly.
Pair Corralation between Norwegian Cruise and Royal Caribbean
Given the investment horizon of 90 days Norwegian Cruise Line is expected to under-perform the Royal Caribbean. But the stock apears to be less risky and, when comparing its historical volatility, Norwegian Cruise Line is 1.26 times less risky than Royal Caribbean. The stock trades about -0.04 of its potential returns per unit of risk. The Royal Caribbean Cruises is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 24,181 in Royal Caribbean Cruises on November 18, 2024 and sell it today you would earn a total of 2,128 from holding Royal Caribbean Cruises or generate 8.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norwegian Cruise Line vs. Royal Caribbean Cruises
Performance |
| Timeline |
| Norwegian Cruise Line |
| Royal Caribbean Cruises |
Norwegian Cruise and Royal Caribbean Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norwegian Cruise and Royal Caribbean
The main advantage of trading using opposite Norwegian Cruise and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Cruise 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.| Norwegian Cruise vs. Carnival | Norwegian Cruise vs. Airbnb Inc | Norwegian Cruise vs. Expedia Group | Norwegian Cruise vs. Booking Holdings |
| Royal Caribbean vs. Carnival | Royal Caribbean vs. Airbnb Inc | Royal Caribbean vs. Expedia Group | Royal Caribbean vs. Booking 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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