Correlation Between Carnival Plc and Norwegian Cruise

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

By analyzing existing cross correlation between Carnival plc and Norwegian Cruise Line, you can compare the effects of market volatilities on Carnival Plc and Norwegian Cruise 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 Carnival Plc with a short position of Norwegian Cruise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carnival Plc and Norwegian Cruise.

Diversification Opportunities for Carnival Plc and Norwegian Cruise

0.97

Correlation Coefficient

Carnival Plc  Norwegian Cruise

Almost no diversification

The 3 months correlation between Carnival and Norwegian is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Carnival plc and Norwegian Cruise Line in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Cruise Line and Carnival Plc 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 Carnival plc are associated (or correlated) with Norwegian Cruise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Cruise Line has no effect on the direction of Carnival Plc i.e., Carnival Plc and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Carnival Plc and Norwegian Cruise

Assuming the 90 days trading horizon Carnival plc is expected to generate 0.92 times more return on investment than Norwegian Cruise. However, Carnival plc is 1.08 times less risky than Norwegian Cruise. It trades about 0.25 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about -0.04 per unit of risk. If you would invest  14,715  in Carnival plc on September 23, 2024 and sell it today you would earn a total of  1,611  from holding Carnival plc or generate 10.95% return on investment over 90 days.

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

Carnival plc  vs.  Norwegian Cruise Line

Carnival plc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival plc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Carnival Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Cruise Line

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Norwegian Cruise sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carnival Plc and Norwegian Cruise

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

The idea behind Carnival plc and Norwegian Cruise Line 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.